An analysis in which each of the inputs and assumptions for a project takes on a separate assumed distribution whereby a computer draws on each of those input and assumption distributions to create a distribution for the NPV of the entire project is called:
A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) a horizontal analysis.

Question

Quizplus · Accepted Answer

This analysis is called a simulation analysis, where multiple distributions are assumed for inputs and assumptions, and the computer draws on these to create a distribution for the NPV of the entire project. Sensitivity analysis focuses on changing one input at a time to assess its impact on the NPV, while scenario analysis looks at different combinations of inputs to create alternative scenarios for the NPV. Horizontal analysis is a method of financial statement analysis that compares financial data over several periods.

An Analysis in Which Each of the Inputs and Assumptions