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5. Sensitivity and scenario analysis Different techniques for analyzing project risk require different input variables and assumptions. Suppose you are using the scenario analysis technique

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5. 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 several input variables together in the model to evaluate the effect of the input factors on the expected value. Ell is a risk analyst. She is conducting a sensitvity analysis to evaluate the riskiness of a new company is considering investing in. Her risk analysis report includes the sensitivity curve shown on the graph. NPV (Millions of dollars Base Case NPV IBase Case Cost of Capital 15 COST OF CAPITAL (Percent) This curve implies that the project is not very sensitive to changes in cost of capital. The project's NPV is likely to if the cost of capital increases to 15%. stay positive become negative

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