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	<title>Comments on: How to Stress-test Your Business Case</title>
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	<description>Financial Modelling Experts sharing their knowledge</description>
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		<title>By: Gavin Townshend</title>
		<link>http://www.fimodo.com/2009/11/how-to-stress-test-your-business-case/comment-page-1/#comment-316</link>
		<dc:creator>Gavin Townshend</dc:creator>
		<pubDate>Thu, 04 Feb 2010 17:37:22 +0000</pubDate>
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		<description>The point about distinguishing between stress-testing a business vs. stress-testing a financial model is a good one and often overlooked.

People with a commercial hat on will be more interested in stress-testing the business represented by a financial model, and I think it is fair to say that they will assume that the underlying logic of a financial model is all correct.  However, from a model developer point of view (which could often be the same person changing hats), it is important to test the underlying logic of a model during the development process as described in the article.

A few more similar tests that could be performed include:
- An NPV calculated with a discount rate of zero must equal the sum of the cash flows.
- An NPV calculated with a discount rate equal to the IRR must equal zero (it is often forgotten that this is the definition of IRR in the first place).
- A weighted average must always be between the minimum and maximum values.
- What happens if interest rates are set to zero?
- What happens if exchange rates are set to zero?
- What happens if depreciation periods are set to one?
- What happens if the tax rate is set to zero or 100%?

From a commercial point of view many of these tests may seem non-sensical, but the intention of these tests is to check the model logic only, not commercial robustness.</description>
		<content:encoded><![CDATA[<p>The point about distinguishing between stress-testing a business vs. stress-testing a financial model is a good one and often overlooked.</p>
<p>People with a commercial hat on will be more interested in stress-testing the business represented by a financial model, and I think it is fair to say that they will assume that the underlying logic of a financial model is all correct.  However, from a model developer point of view (which could often be the same person changing hats), it is important to test the underlying logic of a model during the development process as described in the article.</p>
<p>A few more similar tests that could be performed include:<br />
- An NPV calculated with a discount rate of zero must equal the sum of the cash flows.<br />
- An NPV calculated with a discount rate equal to the IRR must equal zero (it is often forgotten that this is the definition of IRR in the first place).<br />
- A weighted average must always be between the minimum and maximum values.<br />
- What happens if interest rates are set to zero?<br />
- What happens if exchange rates are set to zero?<br />
- What happens if depreciation periods are set to one?<br />
- What happens if the tax rate is set to zero or 100%?</p>
<p>From a commercial point of view many of these tests may seem non-sensical, but the intention of these tests is to check the model logic only, not commercial robustness.</p>
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