Monte Carlo simulation is an inappropriate tool to analyze cash budgets because of the inherent uncertainty of the sales forecasts on which most cash budgets are based.

Question

Quizplus · Accepted Answer

Monte Carlo simulation can be a useful tool to analyze cash budgets, especially when dealing with uncertain variables such as sales forecasts. By using probability distributions and running multiple simulations, Monte Carlo can provide valuable insights into the range of possible outcomes and help identify potential risks and opportunities for the budget. However, like any tool, it depends on how it's applied and the quality of the input data. If the sales forecasts are highly uncertain or unreliable, then Monte Carlo simulation may not be very effective in improving the accuracy or usefulness of the cash budget.

Monte Carlo Simulation Is an Inappropriate Tool to Analyze Cash