Which of the following statements concerning (forecasting) risk analysis in capi

Question

Which of the following statements concerning (forecasting) risk analysis in capital budgeting is/are incorrect? a. The simulation analysis is the best method to identify the variable that presents the highest degree of forecasting risk. b. If the NPV of the expected scenario is negative then it is unnecessary to analyze the optimistic and the pessimistic scenarios c. Scenario analysis is less apt than sensitivity analysis to determine which single variable has the greatest impact on the net present value d. Both a and b are correct. e. Both a and c are correct.

Explanation / Answer

Option B is correct as incorrect from all of the option..

If the NPV of the expected scenario is negative then it is unnecessary to analyze the optimistic and the pessimistic scenarios. The other scenario have different imact on the analysis therefore all the three should be performed.

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