5. Methods of analyzing risk for capital budgeting decisions Several types of analyses are available for evaluating a project's risk. In the following table, correctly identify the analysis being described. Scenario Analysis Sensitivity Analysis Simulation Analysis Measures the change in NPV that occurs when only one variable is changed Lolo Uses computers to consider a large number of possibilities for a project Examines the effect of simultaneous changes in multiple drivers of a project's NPV O Consider the following case: Coppinger Corp. is considering the use of a computer to assign probability distributions to the input variables used in the analysis. The computer would then randomly select input variables from their distributions and calculate NPVs based on those selections. What kind of analysis is this? O Scenario analysis Simulation analysis O Sensitivity analysis Suppose Coppinger Corp. is evaluating new capital budgeting project and conducting some basic risk analysis. First, it calculates the project's NPV at various levels for the project's key input variables. Coppinger next calculates the project's NPV at various prices per unit, plots the results on the accompanying graph, and then repeats this process separately for variable cost per unit and required return. This process is a whose results are shown on the graph. NPV (Millions of $1 200 Price per Unit 120 40 Required Return -40 - 120 Variable Cost per Unit -200 -20 - 12 -4 4 12 20 DEVIATION (%) According to this analysis, which variable is the key value driver for the project? Required return Variable cost per unit Price per unit At the current input-value estimates, does this project have a positive or negative NPV? Positive NPV Negative NPV Decision trees are a visual representation of the sequential choices that financial decision makers face when making capital budgeting and investment decisions. True or False: Typically the beginning of the project is riskier than later stages