ABSTRACT
A robust financial model accounts for such variability in demand corresponding to a range of price points and a sensitivity analysis helps optimize project size and pricing. The preparation of a financial model, containing, among other things, the cash-flow projections is a critical part of the analysis and investment decision-making process. The financial model of a project is acutely dependent on the reliability of the inputs and assumptions to provide requisite comfort to prospective lenders and investors. The earnings after tax are computed by deducting the tax payable from the earnings before tax but after allowing for the interest charge and the depreciation on the assets. The balance sheet provides the residual book-value of the project's assets at any point in time and thus helps arrive at interim valuations in case a change in ownership is contemplated. A robust financial model enables thorough sensitivity and scenario analyses to ascertain the vulnerability of the project to drastic changes in input variables.
