6. Sensitivity and scenario analysis Different techniques of project risk analys

Question

6. Sensitivity and scenario analysis Different techniques of project risk analysis involve different input variables and assumptions. The procedure in which a set of key elements affecting the expected value are changed to study the effect on the expected value is called analysis. scenario Kathy is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new project that her company is considering investing in. Her risk analysis report includes the sensitivity curve shown on the graph NPV (Miions of dollars Base Case NPV i Base Case L Cost of Copital COST OF CAPITAL (Percent This curve impliles that the project i s not very sensitive to changes in cost of capital. The project's NPV is likely to

Explanation / Answer

1)sensitivity analysis

2)stay positive

3)expected NPV = (-5.62 *.35 )+(7.94*.30)+(16.45*.35)

                       = -1.967 + 2.382 + 5.7575

                       = $ 6.1725

4)9.30 MILLION

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