Title

Financial Leverage, Project Equity, and Sensitivity of NPV

Publication Title

Research in Finance

Publication Date

2012

Document Type

Article

Keywords

financial leverage, project equity, sensitivity of NPV

Disciplines

Finance and Financial Management

Abstract

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.

Publisher

Emerald Group Publishing Limited

Publisher Location

United Kingdom


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