The difference between scenario analysis and sensitivity analysis is that
A) scenario analysis is based upon the IRR and sensitivity analysis is based upon NPV.
B) only sensitivity analysis allows us to change our estimated inputs of our NPV analysis.
C) scenario analysis considers the effect on NPV of changing multiple project parameters.
D) only scenario analysis breaks the NPV calculation into its component assumptions.

Question

Quizplus · Accepted Answer

Scenario analysis considers the effect on NPV of changing multiple project parameters, while sensitivity analysis allows us to test the impact of changes to individual input variables. Option A is not accurate as both scenario analysis and sensitivity analysis can be based on either the IRR or NPV. Option B is incorrect as sensitivity analysis allows for changes in estimated inputs of NPV analysis. Option D is also incorrect as both scenario analysis and sensitivity analysis break down the calculations into their component assumptions.

The Difference Between Scenario Analysis and Sensitivity Analysis Is That