Financial Leverage, Project Equity, and Sensitivity of NPV
Research in Finance
financial leverage, project equity, sensitivity of NPV
Finance and Financial Management
We develop two new measures for assessing project uncertainty in sensitivity/scenario analyses. For sensitivity analysis, we develop the “Z% Elasticity Coefficient,” building on the elasticity concept in economics. For scenario analyses, we develop the “Proportionate Range.” Both are substitutes for employing mean–variance (of Net Present Value or NPV) analysis, which has been criticized for assessing project uncertainty. The appendix provides examples of computing each measure for a hypothetical project.
Dennis, Steven A. and Smith, William Steven (2012). Financial Leverage, Project Equity, and Sensitivity of NPV. Research in Finance 28, 111-123. Retrieved from http://digitalcommons.kent.edu/finpubs/7
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