The sensitivity analysis. Introduction: Sensitivity Analysis: The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant. Scenario Analysis: The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario. Simulation Analysis: Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

Question

National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.

Answer 1

Question

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

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National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.

The FOMC has instructed the FRBNY Trading Desk to purchase $500 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 5 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 95 percent of these funds to their banks in the form of transaction deposits?

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Answer 2

Question

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

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Answer 3

Question

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

Expert Solution & Answer

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Answer 4

Question

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

Expert Solution & Answer

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Answer 5

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

Answer 6

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

Answer 7

Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

Answer 8

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

Answer 9

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

Answer 10

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

Answer 11

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.

Answer 12

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Ch. 12 - Prob. 1Q Ch. 12 - Prob. 2Q Ch. 12 - Explain why net operating working capital is...Ch. 12 - Why are interest charges not deducted when a...Ch. 12 - Prob. 5Q Ch. 12 - What are some differences in the analysis for a...Ch. 12 - Distinguish among beta (or market) risk,...Ch. 12 - Prob. 8Q Ch. 12 - Prob. 9Q Ch. 12 - If you were the CFO of a company that had to...

Solution Summary: The author explains that sensitivity analysis reflects the change in the end result of a project. Simulation analysis considers changes in multiple inputs at the same time.

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

To explain: The simulation analysis and the project on which the simulation will be applied.

Chapter 12 Solutions

Solution Summary: The author explains that sensitivity analysis reflects the change in the end result of a project. Simulation analysis considers changes in multiple inputs at the same time.

To explain: The scenario analysis Introduction: Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

To explain: The simulation analysis and the project on which the simulation will be applied.

Chapter 12 Solutions

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.