Monte Carlo simulation
A) Can be useful for estimating a project's stand-alone risk.
B) Is capable of using probability distributions for variables as input data instead of a single numerical estimate for each variable.
C) Produces both an expected NPV (or IRR)and a measure of the riskiness of the NPV or IRR.
D) All of the above.
E) Only answers a and b are correct.

Question

Quizplus · Accepted Answer

Monte Carlo simulation is a powerful tool for project evaluation as it evaluates the stand-alone risk for projects and allows for the use of probability distributions instead of numerical estimates for variables. It produces expected NPV or IRR, along with the measure of risk involved in them, making it a comprehensive tool for project evaluation.

Monte Carlo Simulation