‘NPV is just a tool and as with any tool, it can be dangerous in the wrong hands.’

(a) Discuss this statement. In what way do sensitivity analysis, break-even analysis and scenario analysis improve things? Surely they are just tools as well?

(b) Explain the rationale underlying Monte Carlo simulation. How does it improve upon other forms of sensitivity analysis? Does it have any weaknesses? If so, what are they?

How could you improve on the methodology?

(c) When should you stop decision tree analysis on a capital budgeting project?