
352 INTERNATIONAL FINANCIAL MANAGEMENT
produced by the project. Similarly, the profit margins are influenced by input costs. The
number of units sold, selling price, operating costs, amount of working capital, capacity uti-
lization rate, foreign exchange rate, and salvage value are the major variables that influence
cash flows, and thus the NPV or IRR of a project. Sensitivity analysis is a technique that
indicates a change in NPV or IRR for a given change in a variable, assuming other variables
constant. Sensitivity analysis can also be called what-if analysis as it provides answers to a
series of “what if” questions. For example, what if the ...