The Methods used in evaluation of investment projects and a case study by using sensitivity analysis

vıı ABSTRACT In this study, methods used in evaluation of investment projects and sensitivity analysis as a risk determination method are examined. This study consists of four parts. In the first part of this study, investment, uncertainty and risk concepts are explained and the requirement for preparing and evaluating an investment project is examined. Moreover, types of risk and the reasons of risk and uncertainty are explained. At the end of this part, it is stated how much investment decisions are affected by uncertainty and risk. In the second part of the study, first the economic variables of investment projects are mentioned. Then, static and dynamic methods used in the evaluation of investment projects are explained by using examples. Also, critics related to evaluation methods are mentioned. Sensitivity analysis and probability analysis methods which are used for determining the risk of investment projects are talked about. At the end of this part, some risk measurement techniques are mentioned and explained by using examples. In the third part of this study, the use of sensitivity analysis in evaluation of investment projects is examined. First, the reasons of sensitivity analysis are mentioned. The usage area and benefits of sensitivity analysis are talked about. The missing aspects of sensitivity analysis in evaluation of investment projects are also examined. At the end of this part, the methods used in sensitivity analysis namely, break-even and discounted cash flow methods are studied and examples related to these methods were used for better understanding. In the fourth and last part, a case study related to the use of sensitivity analysis in evaluation of investment projects is done. Cost and income of an organization that is planing to produce cotton thread are forecasted before the factory is established and this investment is evaluated by using dynamic evaluation methods. At the end of the case study, it is determined to which variables the result is the most sensitive by using sensitivity analysis.