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What are sensitivity analysis, scenario analysis, break-even analysis, and simulation? Why are these analyses important, and...

What are sensitivity analysis, scenario analysis, break-even analysis, and simulation? Why are these analyses important, and how should they be used?

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Answer #1

Sensitvity analysis refers to how the final output changes if variables are changed.

Scenario analyis refers to the process of analyzing future events by considering possible outcomes.

Breakeven analysis refers to determing the number of units which when sold will result in no profit or loss to the company.

Simulation is an imitation of a real world process.

These analyses are important since they reduce the impact of uncertainties in an economic environemnt. They should be used to conduct business and make decisions which are not risky and which are not prone to change as per changing conditions.

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