The difference between scenario analysis and sensitivity analysis is that:
A)scenario analysis is based upon the IRR and sensitivity analysis is based upon NPV.
B)only sensitivity analysis allows us to change our estimated inputs of our NPV analysis.
C)only scenario analysis considers the effect on NPV of changing multiple project parameters.
D)only scenario analysis breaks the NPV calculation into its component assumptions.

Question

Quizplus · Accepted Answer

Scenario analysis is a technique for analyzing and understanding the impact of multiple changes in project parameters on the projected NPV of a project. Sensitivity analysis, on the other hand, involves changing individual input variables to understand the impact on the project's NPV. Therefore, only option C accurately distinguishes between the two methods.

The Difference Between Scenario Analysis and Sensitivity Analysis Is That