Evaluating Capital Investment projects Essay Example | Topics and Well Written Essays - 250 words

Evaluating Capital Investment projects - Essay Example On the contrary, non-discounted matrices applies accounting rate of return. The metrics measure project performance/progress over a given period. Therefore, it is advisable for Arizona Hospital to select a combination of metrics due to the prones and cones associated with each metrics. Some of the prones of discounted matrices include; they give the intrinsic value of an investment, they are easier to apply and are reliable to use than non-discounted cash flow metrics methods. Some of the disadvantages of discounted metrics over non-discounted metrics include; they are based on assumptions and can only be reliable when there is certainty of cash flows (Baker & English, 2011). On the other hand, sensitivity analysis entails a mathematical technique used to determine the impact of independent variable over the dependent variable. The sensitivity may tell the senior managers of Arizona hospital whether the project will be optimal and the level of risk associated with a particular project so that necessary changes can be applied accordingly (Saltelli, Tarantola & Campolongo, 2004). This means that sensitivity analysis act as a useful tool for assessing capital projects risk and returns. This is because sensitivity analysis helps to identify the potential investments risk in the market, these help managers to prepare on how they can deal with that risk (Saltelli & Wiley InterScience,