A change in sales price of a product sold by a company will probably involve a reduction in the number of units sold, as well as the possibility of a change in the cost structure of the company's product in question. If a company were interested in the entire price change effect on the NPV of a project, then it would be interested in
A) sensitivity analysis.
B) scenario analysis.
C) simulation analysis.
D) none of the above.

Question

Quizplus · Accepted Answer

Scenario analysis is the best choice because it involves analyzing the impact of various scenarios or situations, including changes in sales price, on the NPV of a project. It considers the potential changes in the cost structure and the number of units sold in response to changes in price, providing a comprehensive overview of the overall effect on the project's profitability. Sensitivity analysis and simulation analysis may help to identify potential risks and uncertainties, but they do not specifically address the impact on NPV due to changes in sales price.

A Change in Sales Price of a Product Sold by a Company