Generally,financial analysis is considered quite specific and exact.For example,a project with a net present value greater than zero or one with a benefit/cost ratio over 1.0 theoretically represents an economically sound project.However,in actuality,relying on such an exact standard is unrealistic.Even when using Net Present Value,common sense dictates that some margin of safety should be applied before we part with any cash.The problem is that,in using any of the potential financial decision factors,the mathematics requires that we make an inherent,underlying assumption that there will be no unpredicted changes in the variables.In other words,we assume there will be no variation in interest and/or inflation rates,no fluctuation in prices,no changes in production rates,no unforeseen change in the contracts awarded to the firm making the investment,and so on.These are hardly realistic assumptions.
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