Question

Which of the following statements is(are) true? I. A sensitivity analysis is one method managers can...

Which of the following statements is(are) true?

I. A sensitivity analysis is one method managers can use to examine the stand-alone risk of a project.
II. When performing a scenario analysis, it is never necessary to estimate the cash flows of the base case economic scenario.  
III. Monte Carlo analysis can be viewed as a more sophisticated version of scenario analysis.

I only

II only

III only

I and II only

I and III only

Homework Answers

Answer #1

Sensitivity analysis is one method which managers can use to examine the standalone risk of a project and Monte Carlo analysis will be viewed as a more sophisticated version of scenario analysis because it is an advancement of the scenario analysis.

Another statement regarding scenario analysis is false which states that when performing a scenario analysis it is never necessary to estimate the cash flows of the best case economic scenario

Correct answer will be option (e) I and III only

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