Sample interview questions: Describe a situation where you had to conduct sensitivity analysis on a financial model to assess the impact of changes in research and development expenditures.
Sample answer:
Assessing the Impact of R&D Expenditures through Sensitivity Analysis:
In a project evaluating the potential return on investment for a biotechnology company, I conducted a sensitivity analysis on a financial model to assess the impact of varying research and development (R&D) expenditures.
The model projected financial performance over 10 years, considering factors such as revenue growth, operating costs, and capital requirements. Initially, R&D expenditures were estimated to increase by 5% annually.
To conduct the sensitivity analysis, I systematically modified the R&D expenditure growth rate in the model. I tested scenarios where the growth rate ranged from -5% (decrease) to +15% (significant increase).
The results revealed a nonlinear relationship between R&D expenditures and financial performance. A decrease in R&D spending led to lower revenue growth and profitability but also reduced operating costs. Conversely, a substantial increase in R&D expenses initially boosted revenue growth and profitability, but eventually strained financial resources.
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