A sensitivity analysis, also referred to as a 'what-if' statement, will show the potential impact to a project's cash flow and financial statements, based on changes to various inputs. Given that a number of assumptions must be made in order to construct the necessary financial statements and evaluate a project, a sensitivity analysis helps to test those assumptions and develop 'worst case' scenarios. These scenarios can then be used to set risk parameters and establish tolerances and limits.
A sensitivity analysis will consider how changes in:
■ Concession Life
■ Length of construction period
■ Amount of capital subsidies, if any
■ Amount of fixed annual operational subsidies, if any
■ Structure and cost of capital
■ Traffic projections or annual growth rates
■ Inflation Rates
■ Interest rates
Will impact:
■ Construction costs
■ Operating costs
■ Revenues
■ NPV
■ ROE