If a project holds an 80 per cent probability of high demand and a 20 per cent probability of low demand, then the expected value of the net present value of the two different demand assumptions would give us a weighted average net present value for the project. Such an analysis is called
A) a sensitivity analysis.
B) a scenario analysis.
C) a simulation analysis.
D) none of the above.

Question

Quizplus · Accepted Answer

The analysis described in the question is a scenario analysis, where different scenarios (in this case, high and low demand) are considered and their probabilities are weighed to get a weighted average. Sensitivity analysis involves changing one variable at a time to see how it affects the outcome, while simulation analysis involves creating a model to simulate different scenarios and see how they play out.

If a Project Holds an 80 Per Cent Probability of High