Which of the following best describe the term scenario analysis.
A) Investigation of what happens to NPV when only one variable is changed.
B) The determination of what happens to NPV estimates when we ask what-if questions.
C) The degree to which a ﬁrm or project relies on ﬁxed costs.
D) The change in costs that occurs when there is a small change in output.
E) Taking into account the managerial options that are implicit in a project.

Question

Quizplus · Accepted Answer

Scenario analysis involves investigating how changes to certain variables impact the estimation of NPV. By asking "what-if" questions, the analyst can simulate different scenarios to determine the potential impact on the project's financial returns. This helps to identify the key drivers of value and provides insight into the level of uncertainty associated with the project's cash flows.

Which of the Following Best Describe the Term Scenario Analysis