A firm prefers to assume a probability distribution concerning each of the major inputs for the net present value of a project and then randomly draw those inputs over and over again until a distribution is generated for the net present value of an entire project.The firm is performing

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Quizplus · Accepted Answer

The firm is drawing inputs randomly multiple times to generate a distribution for net present value of a project, which is a characteristic of Monte Carlo analysis. Therefore, option A is the correct answer. Sensitivity analysis involves changing one input variable at a time to see the effect on the outcome, and scenario analysis involves analyzing multiple scenarios of inputs. Neither of these methods involve randomly drawing inputs multiple times to generate a distribution.

A Firm Prefers to Assume a Probability Distribution Concerning Each