Terminology * Match each of the following terms to one of the definitions or descriptions listed below: sensitivity analysis, scenario analysis, break-even analysis, operating leverage, Monte Carlo simulation, decision tree, real option, tornado diagram. a. Recalculation of project NPV by changing several inputs to new but consistent values. b. Opportunity to modify a project at a future date. c. Analysis of how project NPV changes if different assumptions are made about sales, costs, and other key variables. d. The degree to which fixed costs magnify the effect on profits of a shortfall in sales. e. A graphical technique for displaying possible future events and decisions taken in response to those events. f. A graphical technique that is often used to display the results of a sensitivity analysis. g. Determination of the level of future sales at which project profitability or NPV equals zero. h. Method for calculating the probability distribution of possible outcomes.

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Answer 1

Textbook Question

Chapter 10, Problem 1PS

Terminology* Match each of the following terms to one of the definitions or descriptions listed below: sensitivity analysis, scenario analysis, break-even analysis, operating leverage, Monte Carlo simulation, decision tree, real option, tornado diagram.

a. Recalculation of project NPV by changing several inputs to new but consistent values.
b. Opportunity to modify a project at a future date.
c. Analysis of how project NPV changes if different assumptions are made about sales, costs, and other key variables.
d. The degree to which fixed costs magnify the effect on profits of a shortfall in sales.
e. A graphical technique for displaying possible future events and decisions taken in response to those events.
f. A graphical technique that is often used to display the results of a sensitivity analysis.
g. Determination of the level of future sales at which project profitability or NPV equals zero.
h. Method for calculating the probability distribution of possible outcomes.

Expert Solution & Answer

Summary Introduction

To match: The terms with its appropriate definitions.

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

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Students have asked these similar questions

Explain the concept of sensitivity analysis as determined by NPV Breakeven sensitivity. How is it measured and what insights does it provide about the risk of a project? Goal seek can be used to evaluate the NPV breakeven of an input. What needs to happen next in order to evaluate and interpret the results? How do we know whether the results suggest that an input adds a little, or a lot, of risk relative to a project?

Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choice

Compare and contrast different project evaluation methods, including net present value (NPV), internal rate of return (IRR), and payback period. When is each method most suitable for project analysis?

Answer 2

Textbook Question

Chapter 10, Problem 1PS

Terminology* Match each of the following terms to one of the definitions or descriptions listed below: sensitivity analysis, scenario analysis, break-even analysis, operating leverage, Monte Carlo simulation, decision tree, real option, tornado diagram.

a. Recalculation of project NPV by changing several inputs to new but consistent values.
b. Opportunity to modify a project at a future date.
c. Analysis of how project NPV changes if different assumptions are made about sales, costs, and other key variables.
d. The degree to which fixed costs magnify the effect on profits of a shortfall in sales.
e. A graphical technique for displaying possible future events and decisions taken in response to those events.
f. A graphical technique that is often used to display the results of a sensitivity analysis.
g. Determination of the level of future sales at which project profitability or NPV equals zero.
h. Method for calculating the probability distribution of possible outcomes.

Expert Solution & Answer

Summary Introduction

To match: The terms with its appropriate definitions.

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

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Answer 3

Textbook Question

Chapter 10, Problem 1PS

Terminology* Match each of the following terms to one of the definitions or descriptions listed below: sensitivity analysis, scenario analysis, break-even analysis, operating leverage, Monte Carlo simulation, decision tree, real option, tornado diagram.

a. Recalculation of project NPV by changing several inputs to new but consistent values.
b. Opportunity to modify a project at a future date.
c. Analysis of how project NPV changes if different assumptions are made about sales, costs, and other key variables.
d. The degree to which fixed costs magnify the effect on profits of a shortfall in sales.
e. A graphical technique for displaying possible future events and decisions taken in response to those events.
f. A graphical technique that is often used to display the results of a sensitivity analysis.
g. Determination of the level of future sales at which project profitability or NPV equals zero.
h. Method for calculating the probability distribution of possible outcomes.

Expert Solution & Answer

Summary Introduction

To match: The terms with its appropriate definitions.

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

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Answer 4

Textbook Question

Chapter 10, Problem 1PS

Terminology* Match each of the following terms to one of the definitions or descriptions listed below: sensitivity analysis, scenario analysis, break-even analysis, operating leverage, Monte Carlo simulation, decision tree, real option, tornado diagram.

a. Recalculation of project NPV by changing several inputs to new but consistent values.
b. Opportunity to modify a project at a future date.
c. Analysis of how project NPV changes if different assumptions are made about sales, costs, and other key variables.
d. The degree to which fixed costs magnify the effect on profits of a shortfall in sales.
e. A graphical technique for displaying possible future events and decisions taken in response to those events.
f. A graphical technique that is often used to display the results of a sensitivity analysis.
g. Determination of the level of future sales at which project profitability or NPV equals zero.
h. Method for calculating the probability distribution of possible outcomes.

Expert Solution & Answer

Summary Introduction

To match: The terms with its appropriate definitions.

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To match: The terms with its appropriate definitions.

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

Answer 8

Expert Solution & Answer

Summary Introduction

To match: The terms with its appropriate definitions.

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To match: The terms with its appropriate definitions.

Answer 12

Explanation of Solution

a) The computation of the NPV of the project by changing various inputs to a consistent and a new values.

Hence, the correct answer is scenario analysis.

b) The chance to change the project on a future date.

Hence, the correct answer is real option.

c) The evaluation of how the NPV of the project changes if varied assumptions are made for costs, sales and any other fundamental variables.

Hence, the correct answer is sensitivity analysis.

d) The extent to which the fixed costs expands the outcome on profits for a shortfall in the sales.

Hence, the correct answer is operating leverage.

e) The graphical method for viewing a possible upcoming decisions and events taken in response for those activities.

Hence, the correct answer is decision tree.

f) A graphical method, which is usually utilized to view the outcome of sensitivity analysis.

Hence, the correct answer is tornado diagram.

g) Identification of the future sales level at which the profitability or NPV of the project is equivalent to zero.

Hence, the correct answer is break-even analysis.

h) The technique of computing the probability distribution of possible results.

Hence, the correct answer is Monte Carlo simulation.

Answer 13

Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PS Ch. 10 - Prob. 7PS Ch. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PS Ch. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PS Ch. 10 - Prob. 12PS

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