The type of analysis that models some event and requires that estimates be made of the probability distribution of each cash flow element is _____.
A) scenario
B) sensitivity
C) simulation
D) net present value/payback approach

Question

Quizplus · Accepted Answer

Simulation analysis is used when there are many possible outcomes or scenarios, and estimates must be made of the probability distribution for each cash flow element. Sensitivity analysis involves changing one variable at a time to determine the effect on the outcome, while scenario analysis involves examining a small number of plausible scenarios. The net present value/payback approach involves discounting future cash flows to their present value or determining how many years it will take to recover the initial investment.

The Type of Analysis That Models Some Event and Requires