Which one of the following statements concerningscenario analysis is correct? Ch

Question

Which one of the following statements concerningscenario analysis is correct? Choose one answer. a. Thepessimistic case scenario determines the maximum loss, in currentdollars, that a firm could possibly incur from a givenproject. b. Scenarioanalysis defines the entire range of results that could be realizedfrom a proposed investment project. c. Scenarioanalysis determines which variable has the greatest impact on aproject's final outcome. d. Scenarioanalysis helps managers analyze various outcomes that are possiblegiven reasonable ranges for each of the assumptions. e. Managementis guaranteed a positive outcome for a project when the worst casescenario produces a positive NPV Which one of the following statements concerningscenario analysis is correct? Choose one answer. a. Thepessimistic case scenario determines the maximum loss, in currentdollars, that a firm could possibly incur from a givenproject. b. Scenarioanalysis defines the entire range of results that could be realizedfrom a proposed investment project. c. Scenarioanalysis determines which variable has the greatest impact on aproject's final outcome. d. Scenarioanalysis helps managers analyze various outcomes that are possiblegiven reasonable ranges for each of the assumptions. e. Managementis guaranteed a positive outcome for a project when the worst casescenario produces a positive NPV Choose one answer. a. Thepessimistic case scenario determines the maximum loss, in currentdollars, that a firm could possibly incur from a givenproject. b. Scenarioanalysis defines the entire range of results that could be realizedfrom a proposed investment project. c. Scenarioanalysis determines which variable has the greatest impact on aproject's final outcome. d. Scenarioanalysis helps managers analyze various outcomes that are possiblegiven reasonable ranges for each of the assumptions. e. Managementis guaranteed a positive outcome for a project when the worst casescenario produces a positive NPV

Explanation / Answer

Scenario analysis is the process of estimating the expected value of the portfolio after a particular period of time keeping in consideration the changes in some specific factors like changes in the value of the securities due to the change in the interest rates.

The scenario analysis is used to calculate the estimate the change to a portfolio value to an event which is unfavorable and may be used to determine the worst case scenario.

In general scenario analysis is the process of analyzing the future events by considering the alternative possible outcomes and it is the most used form of projection.

Therefore, it helps the managers analyze various outcomes that are possible given ranges for each of the assumption.

Hence, the correct option is option D.

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