Essay: Sensitivity Analysis of Intrinsic Value per Share

Sample Essay

In the first case of our sensitivity analysis the growth rate is decreased to 1 percent and the discounting factor is held constant at 4 percent which changes the intrinsic value per share to $10.26 which is lower than the expected $11 per share in the base case. In the second scenario the growth rate is increased to 3 percent while the discount rate is held constant at 4 percent which increases the intrinsic value per share to $11.38.

The third case is estimated with a constant growth rate of 2 percent and the discount rate is decreased to 3 percent which increases the intrinsic value per share to $11.97. The intrinsic value per share in the fourth case has decreased to $10.82 per share where the growth rate is held constant at 2 percent and the discount rate is increased to 5 percent. The fifth scenario entails a growth rate of 1 percent and a discount rate of 3 percent which brings the intrinsic value per share to $10.80. In scenario 6 we have decreased the growth rate to 1 percent and increased the discount rate to 5 percent which decreases the intrinsic value per share to $9.74. Scenario 7 has been setup with the growth rate and discount rate being same at 3 percent, which means the growth rate has been increased and the discount rate has been decreased and the resulting intrinsic value per share is the same as scenario 3 which is $11.97.

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