Which of the following is not a method for incorporating risk into capital budge

Question

Which of the following is not a method for incorporating risk into capital budgeting? a. Positive Negative analysis b. Monte Carlo simulations c. Scenario analysis d. Sensitivity analysis e. Decision tree models 40. Scenario/Sensitivity analysis is a procedure that can be used in the capital budgeting process to indicate now sensitive the is to changes in a particular variable. a. probability b. return distribution c. net present value d. standard deviation 41. The probabilities along a path are called probobditcs. a. joint b. conditional c. complex d. none of the above 42. The probability of a path is the product of all the branch probabilities along it and is called a a. joint probability b. conditional probability c. basic probability d. none of the above 43. A real option's value may he more than the amount by which its inclusion in a capital budgeting project increases the project's expected NPV because the real option mas a. reduce the project's risk. b. increase the amount the firm makes if the project turns out really well. c. reduce the loss if the project fails badly. d. a and c 44. Which of the following is not a real option? a. abandonment option b. expansion option c. investment timing option d. flexibility option c. all of the above are real options 45. Which of the following is likely to be true of a valuable abandonment option? a. It makes the NPV of all of the possible outcomes at least equal to zero. b It reduces the project's risk. c. It improves the project's expected NPV. d. Both a, and c, are correct. e. both b, and c, are correct 46. A real option that allows a company to respond more easily to changes in business conditions is known as a(n): a. expansion option

Explanation / Answer

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Answer - 39

Other than Negative/Positive analysis, all considers the probable future conditions to evaluate a project. The consideration of probable future condition is adjustment of risk.

The negative positive analysis does not consider the probable future conditions. Therefore, the correct answer is option a.

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