An analysis in which each of the inputs and assumptions for a project takes on a separate assumed distribution whereby a computer draws on each of those input and assumption distributions to create a distribution for the NPV of the entire project is called
A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) none of the above.

Question

Quizplus · Accepted Answer

A simulation analysis involves creating a distribution for the NPV of a project based on probability distributions of each input and assumption. Sensitivity analysis involves running scenarios by changing one input at a time to see how it affects NPV, whereas scenario analysis involves creating different scenarios with a range of inputs to see how they affect NPV.

An Analysis in Which Each of the Inputs and Assumptions