Question

a) In scenario analysis, a good way to evaluate an opportunity is to compute the simple...

a) In scenario analysis, a good way to evaluate an opportunity is to compute the simple average of the NPVs of the outcomes over all of the scenarios you consider.

True or False?

b) When using scenario analysis to evaluate an opportunity, if the NPVs of all scenarios are positive, it is not necessary to try to find a way to stage the investment

True or False?

c) Even if the average NPV over all scenarios is negative, it may be possible to develop a staged investment strategy that would make the NPV positive, but could require sometimes abandoning the venture even after an investment has been made.

True or False?

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Answer #1

1. The given statement is TRUE statement because a good way to evaluate all opportunities is to compute the average of the npv of all opportunities in scenario analysis.while dealing with multiple scenarios one need to calculate net present value of those scenarios.

2.this given statement is a FALSE statement as even if the net present value of all scenarios is positive, one needs to find the way to stage an investment.

3 . This given statement is a TRUE statement as even if the average net present value of all scenarios are negative, it is still possible to develop staged investment strategy.

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