Vhich of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis considers a best case (within reason) and worst case (within reason) scenario, along with a base case. Scenario analysis focuses on stand-alone risk, since it doesn't consider the project as a part of the larger firm. Sensitivity analysis considers that the project is one part of a larger firm. Sensitivity analysis shows how changes in a single variable affects NPV or IRR. O Scenario analysis assumes all variables take their worst (reasonable) values simultaneously, and best (reasonable) values simultaneously.

Vhich of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis considers a best case (within reason) and worst case (within reason) scenario, along with a base case. Scenario analysis focuses on stand-alone risk, since it doesn't consider the project as a part of the larger firm. Sensitivity analysis considers that the project is one part of a larger firm. Sensitivity analysis shows how changes in a single variable affects NPV or IRR. O Scenario analysis assumes all variables take their worst (reasonable) values simultaneously, and best (reasonable) values simultaneously.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 5QE

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How do simulation analysis and scenario analysis differ in the way theytreat very bad and very good outcomes? What does this imply about usingeach technique to evaluate project riskiness?
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Explain the concept of sensitivity analysis as determined by NPV Breakeven sensitivity. How is it measured and what insights does it provide about the risk of a project? Goal seek can be used to evaluate the NPV breakeven of an input. What needs to happen next in order to evaluate and interpret the results? How do we know whether the results suggest that an input adds a little, or a lot, of risk relative to a project?
Which of the following is NOTa potential problem when estimating and using betas, i.e., which statement is FALSE? a. The fact that a security or project may not have a past history that can be used as the basis for calculating beta. b. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta. c. The beta of an "average stock," or "the market," can change over time, sometimes drastically. d. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. e. The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. This calculated historical beta may differ from the beta that exists in the future. Please Explain for full credit
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