Chapter 15: Sensitivity Analysis Available to Purchase

Right from the start of this book I’ve diluted the belief a company can have that it will become “x” million dollars richer or poorer as a result of doing something new by prefixing it with the word “should.” And that’s because the only thing it can be certain of about a net present value, say, based on future cash flows is that it’s wrong.

Given how much oil an oil field will produce is only a forecast, what the oil price will be when the oil is sold is only a prediction, and how much an oil field will cost to develop is only an estimate, it’s inconceivable that developing and producing a new discovery (for example) will make the company exactly as richer as the petroleum economist calculates. The upshot might even be that the company won’t be richer at all.