You are leading a training session for co-workers in your workplace on conducting a Sensitivity Analysis as a tool for Capital Budgeting. In your presentation, propose quantitative and qualitative factors, methods, or techniques used to integrate risk into proper capital budgeting decisions.
Prepare a PowerPoint presentation on this topic. In 7 content slides,
Identify the goal and functions of financial management.
Distinguish which qualitative and quantitative steps are necessary in conducting a Sensitivity Analysis.
Describe the internal and external financial methods used to determine a project’s risk integrated into a Capital Budgeting analysis.
Include the following requirements in the PowerPoint and video:
Title slide, which includes a link to your video. Follow the Reading and Presentations directions linked in Assignment Resources to record a video and add a link.
Use concise bullet points on the slide and then use the Speaker Notes section to add details for each slide (this becomes your video "speech").
Slide 2: Goal and Functions of Financial Management
| Slide Title: | The Foundations: Goal and Functions of Financial Management |
| Goal: | Maximize Shareholders' Wealth (or Firm Value) 📈 |
| Functions: | 1. Investment Decision (Capital Budgeting): Deciding where to commit the firm's scarce resources for the long term. 2. Financing Decision: Determining the optimal mix of debt and equity (capital structure). 3. Dividend Decision: How much profit to retain for reinvestment versus paying out to shareholders. 4. Working Capital Management: Managing current assets and liabilities to ensure day-to-day liquidity. |
Export to SheetsSpeaker Notes: "The overarching goal of financial management is straightforward: maximizing shareholders' wealth. This isn't just about maximizing profit in the short term, but maximizing the long-term value of the firm. Our discussion today focuses squarely on the Investment Decision, also known as Capital Budgeting. This function involves identifying, evaluating, and selecting long-term projects—like buying new equipment, building a new facility, or launching a new product line. Because these decisions commit large sums of money for many years, they are inherently risky. Integrating risk properly is key to fulfilling our primary goal."
Slide 3: Sensitivity Analysis: Concept and Goal
| Slide Title: | Introduction to Sensitivity Analysis |
| Concept: | Examines how the Net Present Value (NPV) or Internal Rate of Return (IRR) of a project changes when a single underlying variable is changed, holding all other variables constant. |
| Goal: | Identify Critical Variables that have the largest impact on project profitability. Measure Project Risk by determining the "break-even" point for each critical variable. |
| Output: | A range of possible NPVs (Optimistic, Pessimistic, and Expected) and a visual representation of variable impact (e.g., a "Tornado Diagram"). |
Export to SheetsSpeaker Notes: "Sensitivity Analysis is a cornerstone of risk integration. In simple terms, it's a 'what-if' analysis where we isolate one variable—say, sales volume or unit price—and see how much it can change before our project turns unprofitable, meaning the NPV hits zero. The primary goal is to identify the most critical variables. If a small change in unit price causes the NPV to plummet from positive to negative, we know that unit price is a highly sensitive and risky variable that needs intense focus and contingency planning. This gives us a much clearer picture of project risk than just a single expected NPV."
Sample Answer
Capital Budgeting Risk Integration: A Sensitivity Analysis Approach
This presentation outlines how to use Sensitivity Analysis and other methods to integrate risk into capital budgeting decisions.
Slide 1: Title Slide
| Slide Title: | Integrating Risk in Capital Budgeting: A Sensitivity Analysis Approach |
| Subtitle: | Tools for Robust Investment Decisions |
| Presenter: | [Your Name/Training Lead] |
| Date: | September 26, 2025 |
| Video Link: | [Insert Link to Presentation Video Here] |
Export to SheetsSpeaker Notes: "Good morning, everyone. Welcome to this training session on a critical aspect of financial management: integrating risk into our capital budgeting decisions. We'll be focusing specifically on Sensitivity Analysis—a powerful tool that helps us navigate uncertainty. The goal today is to move beyond simple financial metrics and make our investment choices more robust and resilient to change. Let's get started with a brief look at the foundations of financial management."