Which of the following is/are included in the list of drawbacks to using the Monte Carlo simulation for dealing with risk in capital budgeting?
A)Cash flows still have to be estimated subjectively.
B)Individual cash flows generally don't behave independently. If one cash flow turns out to be less than expected, several other may behave the same way.
C)Even after creating a distribution of probably outcomes, it is difficult to know exactly how to interpret the data.
D)Both a. and c. are drawbacks.
E)All of the above are drawbacks.

Question

Quizplus · Accepted Answer

All of the given choices are included in the drawbacks to using Monte Carlo simulation for dealing with risk in capital budgeting. Cash flows still have to be estimated subjectively which can lead to biased results. Individual cash flows generally do not behave independently and may impact several other cash flows if one does not turn out as expected. Even after creating a distribution of probably outcomes, it can be difficult to interpret the data accurately.

Which of the Following Is/are Included in the List of Drawbacks