3. Sensitivity and scenario analysis Different techniques for analyzing project risk require different input variables and assumptions Suppose you are using the scenario analysis technique to evaluate project risk. You would change in the model to evaluate the effect of the input factors on the expected valut. Tanyo is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new project that her compsny is considering investing in. Her risk analysis report indudes the sensitivity curve shown on the graph. iskiness of a new p ring investing in. This curve implies that the project is yery sensitive to changes in the price of the product. The project's NPV is Ikely to become negative Ir the price for which the product can be sold decreases by Along with the sensitivity analysis, Tanyo is including a scenario analysis for the project in her repart, giving the probabilty of the profect generating a negative NPV. Her report includes the following information about the scenario analysis: Complete the missing information in Tonya's report: The expected net present value of the praject is Standard deviation of the net present value (the NPV of the project is wkely to vary by) milition. Assuming that probability distribution is normal. the value of z is Thus, the project has a chance to generate an NPV of less than 30. 3. Sensitivity and scenario analysis Different techniques for analyzing project risk require different input variables and assumptions Suppose you are using the scenario analysis technique to evaluate project risk. You would change in the model to evaluate the effect of the input factors on the expected valut. Tanyo is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new project that her compsny is considering investing in. Her risk analysis report indudes the sensitivity curve shown on the graph. iskiness of a new p ring investing in. This curve implies that the project is yery sensitive to changes in the price of the product. The project's NPV is Ikely to become negative Ir the price for which the product can be sold decreases by Along with the sensitivity analysis, Tanyo is including a scenario analysis for the project in her repart, giving the probabilty of the profect generating a negative NPV. Her report includes the following information about the scenario analysis: Complete the missing information in Tonya's report: The expected net present value of the praject is Standard deviation of the net present value (the NPV of the project is wkely to vary by) milition. Assuming that probability distribution is normal. the value of z is Thus, the project has a chance to generate an NPV of less than 30
