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When the financial executive estimates the cash flows of a project for a capital budgeting analysis, there is a degree of uncertainty surrounding the estimates.

When the financial executive estimates the cash flows of a project for a capital budgeting analysis, there is a degree of uncertainty surrounding the estimates. For example, the realized cash flows depend on a number of factors internal and external to the firm, such as continuing sources of supply and the size and composition of the market for the firms product. In this context, explain what scenario analysis is and how it can assist the financial executive in capital budgeting analysis.

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