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Sensitivity analysis

Recomputing a valuation across a grid of key assumptions, usually discount rate and terminal growth, to show the range rather than a single number.

A DCF that produces one number invites false confidence. A sensitivity table showing values from $19 to $37 a share across reasonable inputs is honest about what the model actually knows.

The useful version runs the inputs that matter most: the discount-rate, the perpetuity-growth-rate, and the one or two operating assumptions the business genuinely turns on, such as margin at maturity.

Example: Northwind Tools priced across discount rates of 7.1% to 9.1% and terminal growth of 1.5% to 3.5% produces equity values from $19.40 to $37.80 a share, against a $26 market price.

Related: discounted-cash-flow, discount-rate, perpetuity-growth-rate, reverse-dcf, terminal-value

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