A firm is considering the effect of high inflation and low inflation environments on a project. In the high inflation environment, the price and costs per unit will be affected.. If the low-inflation environment considered the baseline, then the analysis concerning the high inflation environment could be considered:
A) a sensitivity analysis.
B) a scenario analysis.
C) a Monte Carlo simulation.
D) a horizontal analysis.

Question

Quizplus · Accepted Answer

A scenario analysis involves analyzing the impact of different scenarios, such as high or low inflation, on a project. Sensitivity analysis involves identifying how changes in certain variables, such as price or costs, affect the project's outcome. Monte Carlo simulation involves using random variables to generate multiple possible outcomes. Horizontal analysis involves comparing financial data over time. Of these options, scenario analysis best fits the description of analyzing the impact of different inflation environments on a project.

A Firm Is Considering the Effect of High Inflation and Low