Scenario analysis is the form of risk analysis
A) that examines the relationship between total firm cash flows and the NPV of a particular project.
B) that examines the volatility of NPV.
C) that examines the impact of key variables such as sales or costs in various combinations.
D) that examines the impact of key variables such as sales or costs one at a time.

Question

Quizplus · Accepted Answer

Scenario analysis examines the impact of key variables such as sales or costs in various combinations, making choice C the correct option. It does not necessarily examine the relationship between total firm cash flows and the NPV of a particular project (A) or the volatility of NPV (B). While it can examine the impact of key variables one at a time (D), scenario analysis typically involves looking at how different variables interact with each other in various scenarios.

Scenario Analysis Is the Form of Risk Analysis