Scenario analysis allows a ﬁrm to ask what-if type questions in capital budgeting.

Question

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Scenario analysis involves exploring different possible scenarios and their potential impact on a project or investment. This allows a firm to ask questions like "What if sales are lower than expected?" or "What if interest rates rise?" in order to gain a better understanding of the risks and opportunities associated with a potential investment. Therefore, the statement is true.

Scenario Analysis Allows a ﬁRm to Ask What-If Type Questions