At times, when a firm is considering an alternative such that a set of variables affecting a project are interrelated, then analysis that considers this interrelation could be performed. This is called:
A) a sensitivity analysis.
B) a scenario analysis.
C) a Monte Carlo simulation.
D) a horizontal analysis.

Question

Quizplus · Accepted Answer

When considering a set of interrelated variables affecting a project, the best analysis to perform is a scenario analysis. Sensitivity analysis focuses on assessing the impact of changes in a single variable, while Monte Carlo simulation involves generating multiple possible outcomes based on probability distributions of the variables. Horizontal analysis, on the other hand, compares financial information over time. Therefore, scenario analysis is the most appropriate choice in this scenario.

At Times, When a Firm Is Considering an Alternative Such