This preview shows page 1. Sign up to view the full content.
Unformatted text preview: han analysing the effect on NPV of a single variable (as sensitivity
analysis) scenario analysis considers the effect on NPV of a consistent
combination of variables.
– Scenario analysis calculates NPV in different states, e.g. pessimistic, normal,
and optimistic. – Break even analysis
– Analysis of the level at which the company breaks even, i.e. at which point the
present value of revenues are exactly equal to the present value of total costs.
Thus, break-even analysis asks the question how much should be sold before
the production turns profitable. Download free ebooks at bookboon.com
47 Corporate Finance – Capital budgeting Simulation analysis
– Monte Carlo simulation considers all possible combinations of outcomes by
modelling the project. Monte Carlo simulation involves four steps:
Modelling the project by specifying the project's cash flows as a
function of revenues, costs, depreciation and revenues and costs as a
function of market size, market shares, unit prices and cost...
View Full Document
- Spring '12