A change in sales price of a product sold by a firm 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 firm's product in question. If a firm 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) contribution analysis.

Question

Quizplus · Accepted Answer

Scenario analysis is the best choice as it involves considering the impact of multiple factors such as changes in sales price and the cost structure of the product. Sensitivity analysis, simulation analysis, and contribution analysis can be useful in providing insights into specific factors, but may not capture the full effect of a price change on NPV. Therefore, scenario analysis would provide a more comprehensive evaluation of the overall impact of price change on the project's NPV.

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