An analyst is fairly cautious when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. Which type of analysis is he using? Multiple Choice Simulation testing Break-even analysis Rationing analysis Sensitivity analysis Scenario analysis

An analyst is fairly cautious when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. Which type of analysis is he using? Multiple Choice Simulation testing Break-even analysis Rationing analysis Sensitivity analysis Scenario analysis

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 6Q

See similar textbooks

Similar questions

How do simulation analysis and scenario analysis differ in the way theytreat very bad and very good outcomes? What does this imply about usingeach technique to evaluate project riskiness?
Which of the following is NOT true about simulation models? Option- a. Simulations can be used to analyze processes that cannot be evaluated well analytically. b. A simulation model is used to get estimates; an analytical model provides detailed analysis. c. Simulations can use actual probability rates for both demand and service rates. d. Analytical and simulation models are often used in combination.
What detail would a decision maker require to analyse a dilemma with the expected value? What choices are open if the probabilities of the natural states are uncertain to the decision-maker? Can you ask about how in such a situation you might use sensitivity analysis?
This is is used to check the effect on the recommendations of a model if the estimates turn out to be wrong (say by changing the values of the parameters). Decision analysis O Predictive analysis O What-if analysis O Break-even analysis
Which of the following statements is CORRECT? b. Sensitivity analysis is a type of risk analysis that considers both the sensitivity of NPV to changes in key input variables and the probability of occurrence of these variables' values. c. The primary advantage of simulation analysis over scenario analysis is that scenario analysis requires a relatively powerful computer, coupled with an efficient financial planning software package, whereas simulation analysis can be done efficiently using a PC with a spreadsheet program or even with just a calculator. d. Sensitivity analysis as it is generally employed is incomplete in that it fails to consider the probability of occurrence of the key input variables. e. As computer technology advances, simulation analysis becomes increasingly obsolete and thus less likely to be used as compared to sensitivity analysis.
“CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your decisions, look beyond CVP analysis.” Do you agree? Explain.
Which of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis considers a best case (within reason) and worst case (within reason) scenario, along with a base case. () Scenario analysis focuses on stand-alone risk, since it doesn't consider the project as a part of the larger firm. Sensitivity analysis considers that the project is one part of a larger firm. Sensitivity analysis shows how changes in a single variable affects NPV or IRR. Scenario analysis assumes all variables take their worst (reasonable) values simultaneously, and best (reasonable) values simultaneously. Previous Page Next Page Page 21 of 3
The internal rate of return (IRR), despite its shortcomings, can be a useful analysis tool for decision makers. How is this so?
Consider the following four statements about value at risk (VaR): The choice of VaR confidence interval and time horizon should be uniform across users. There is not much uniformity of practice as to confidence interval and time horizon; as a result, intuition on what constitutes a large or small VaR is underdeveloped. There are a number of computational and modeling decisions that can greatly influence VaR results, such as the length of time series used for historical simulation or to estimate moments; and the technique used for estimating moments. There are a number of computational and modeling decisions that can greatly influence VaR results, such as mapping techniques and the choice of risk factors. Which of the above statements is/are true?
Which of the following is true about sensitivity analysis? O Sensitivity analysis determines which probability estimates to use in order to make the best possible decision among alternatives. O Sensitivity analysis determines which regret strategy (minimax, maximax, or maximin) should be used. O The rankings of the decision alternatives are frequently not highly sensitive to changes within a plausible range for probability estimates. O Sensitivity analysis is another term for the decision tree technique. n
George wants to calculate risk using risk assessment matrix ,should he assess for the worst credible case Explain in few words
The "what-if" technique of altering certain key variables to assess the impact on the original outcome is called a break-even analysis least squares analysis regression analysis sensitivity analysis