Attempts: Average: 78 5. Methods of analyzing risk for capital budgeting decisions A Aa Several types of analyses are available for evaluating a project's risk. In the following table, correctly identify the analysis being described Scenario Sensitivity Simulation Analysis Analysis Analysis O o Generates results that are calculated under different scenarios based on formulaic assumptions by representing them in the form of frequency distributions Measures the percentage change in a project's NPV when a given variable is changed and all other NPV-drivers are held at their expected values Measures the effect on NPV estimates when key factors that affect NPV change in different situations O 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? Scenario analysis Simulation analysis Sensitivity analysis Suppose Coppinger Corp. is evaluating a 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 results are shown on the graph. simulation analysis scenario analysis sensitivity analysis whose NPV Millions of $I 200 120 Price per Unit 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? Scenario analysis Simulation analysis Sensitivity analysis Suppose Coppinger Corp. is evaluating a 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. simulation analysis scenario analysis sensitivity analysis NPV IMillions of $1 200 Price per Unit 120 40 Required Return -40 -120 Variable Cost per Unit -200 -20 -12 -4 4 12 20 DEVIATION 1% According to this analysis, which variable is the key value At the current input-value estimates, does this project driver for the project? have a positive or negative NPV? Price per unit Positive NPV Required return Negative NPV Variable cost per unit
