Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?
A) Determining how fixed costs affect NPV
B) Estimating the residual value of fixed assets
C) Identifying the potential range of reasonable outcomes
D) Determining the minimal level of sales required to break-even on an accounting basis
E) Determining the minimal level of sales required to break-even on a financial basis

Question

Quizplus · Accepted Answer

Scenario analysis helps in identifying the potential range of reasonable outcomes by analyzing different scenarios under different assumptions and inputs. It helps in understanding the sensitivity of the project to various factors and assists in making more informed decisions. The other options are better suited to other methods of analysis, such as cost-volume-profit analysis for break-even analysis and using depreciation schedules for estimating residual values.

Scenario Analysis Is Best Suited to Accomplishing Which One of the Following