Using a computer model to repeatedly vary the combination of project variables in order to compare NPVs is called:
A) Scenario analysis
B) Sensitivity analysis
C) NPV break-even analysis
D) Simulation analysis

Question

Quizplus · Accepted Answer

Simulation analysis involves using a computer model to generate multiple scenarios by varying project variables and estimating their impact on the project's NPV. This computational method thus allows for the assessment of the uncertainty and risks associated with a project's potential outcomes. The other options are distinct techniques that do not involve generating multiple scenarios through varying project variables. Sensitivity analysis, for instance, involves gauging the effect of small changes in a specific variable on the project's NPV. NPV break-even analysis, meanwhile, determines the level of sales or production a project must generate to make it profitable. Lastly, scenario analysis assesses the impact of pre-defined events or situations on a project's outcomes.

Using a Computer Model to Repeatedly Vary the Combination of Project