Question

The difference between scenario analysis and sensitivity analysis is that:__________
A) scenario analysis is based upon the IRR and sensitivity analysis is based upon NPV.
B) only sensitivity analysis allows us to change our estimated inputs of our NPV analysis.
C) scenario analysis considers the effect on NPV of changing multiple project parameters.
D) only scenario analysis breaks the NPV calculation into its component assumptions

Answer 1

Answer:

C) scenario analysis considers the effect on NPV of changing multiple project parameters.

Explanation:

Scenario analysis is used to determine the effect on the end result if several parameters are changed . Sensitivity analysis on the other hand involves the effect on the end result due to change in one parameter. With regard to net present value, the scenario analysis on the project will based on effects of changing multiple parameters for example how NPV will change due to increase in price of the products sold, changes in inflation rate and changes in corporate taxes.