Which of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis considers a best case (within reason) and worst case (within reason) scenario, along with a base case. Scenario analysis focuses on stand-alone risk, since it doesnt;s consider the project as a part of the larger firm. Sensitivity analysis considers that the project is one part of a larger firm Sensitivity analysis shows how changes in a single variable affects NPV or IRR Scenario analysis assumes all variables take their worst (reasonable) values simultaneously, and best (reasonable) values simultaneously.

Which of the following is FALSE regarding scenario and sensitivity analysis? Scenario analysis considers a best case (within reason) and worst case (within reason) scenario, along with a base case. Scenario analysis focuses on stand-alone risk, since it doesnt;s consider the project as a part of the larger firm. Sensitivity analysis considers that the project is one part of a larger firm Sensitivity analysis shows how changes in a single variable affects NPV or IRR Scenario analysis assumes all variables take their worst (reasonable) values simultaneously, and best (reasonable) values simultaneously.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.6IP

See similar textbooks

Similar questions

Discuss how one is able to describe the riskiness of the decision-taker’s situation in ways which are intuitively appealing and analytically tractable.
In Multi-Criteria Decision Analysis marginal utility functions are used to assist the decision maker to come to the "best" solution. Utility functions can be either risk prone, risk adverse or neutral. Describe the characteristics of these three types of utility functions.
When choosing a distribution strategy, which of the following statements are true? There can be many factors that influence the choice of a distribution strategy. A manufacturer should avoid intermediaries and always try to sell directly to the end customer. A national distribution strategy can be easily applied to global markets. For a retailer, it is always more economical to buy the goods directly from a manufacturer instead of hiring a wholesaler. When choosing a distribution trategy, the long-term factors are often much more important than the short-term ones.
Discuss Deterministic Safety Factor-Based Methods
Assume that you are the team leader of strategic planning and advisory board of M/S XYZ company. The company has decided to enter the market with a new electronic product. Your team conducted a marker research and presented the following two strategies along with the necessary data. Delete Strategy A: Build a large plant with an estimated cost of 20,00,000 Rials. This alternative can face two states of nature on market conditions: High demand with a probability of 0.70, or a low demand with a probability of 0.30. If the demand is high, the company can expect to receive an annual revenue of 5,00,000 Rials for 7 years. If the demand were low the annual revenue would be only 1,00,000 Rials. Strategy B: Build a small plant with an estimated cost of 10,00,000 Rials. This alternative also faces two states of nature: High demand with a probability of 0.70, or a low demand with a probability of 0.30,lf the demand is high the company can expect to receive an annual revenue of 3,00,000 per annum…
Mikey W. Smitty, an emerging musician, is getting ready to cut his first CD. The cost of recording the CD is $3,000 but copies cost $2 apiece and the CDs can be sold for $17 each. He wishes to know how many CDs he needs to sell to break even and what his profit or loss will be if he happens to sell only 170 CDs. Set up the breakeven problem and be prepared to answer questions from the output. PROBLEM 1) How many CDs must be sold to break even? PROBLEM 1) What is the total revenue at the breakeven point? PROBLEM 1) How much profit / loss will there be if 170 CDs are sold? What is the minimum price Smitty should charge to guarantee he at least breaks even with the sale of 170 CDs?
What is the best of the best payoff value? DİHL Co. is a Danao-based logistics company owned by Engr. Donald H. Lalican. Anticipating the growing demand for delivery services, he developed a strategic plan for the year 2022. The options are to hire additional delivery crews in their Mandaue facility, construct a new facility in Talisay City, or subcontract Chlala Move, a small- time company. A study conducted by the marketing department forecasted the following payoff values, which are summarized in the table below. The values are expressed as gains and alpha = 0.6. States of Nature Decision Alternatives Failure Low Moderate High Hire additional Drivers in Mandaue -450,000 -250,000 250,000 500,000 Construct a facility in Talisay -800,000 -400,000 300,000 700,000 Subcontracting Ohlala Move -100,000 -10,000 150,000 300,000
A risk-neutral firm produces chemical products, and its objective is to maximize expected profit. There is a risk that there will be an accident during the production process, and dangerous chemical products will be released into the ocean, polluting the water. To reduce the risk of an accident, the firm can choose Low or High investment in safety. Low Investment in Safety_ Cost for firm= $0 Probability of an Accident = 80% Probability of No Accident =20% High Investment in Safety Cost for firm= $150 Probability of an Accident = 20% Probability of No Accident = 80% The Government wants to reduce the risk of an accident, but the Government cannot observe the fir m's investment in safety. Therefore there is a moral hazard problem. However, the Government can observe whether an accident occurred or not. So the government decides to create a fine (penalty): if an accident occurs, the firm must pay a fine F to the Government. If an accident does not occurs, then the firm does not have to…
A rational student will continue to studying in a given study session until a) the total value of studying equals the total opportunity cost. b)the marginal value fo the last unit studied equals the total opportunity cost. c) the expected grade is an A d)the expected grade is B e) the expected grade is passing
Whats the differnce between Expected Monetary Value (EMV) criterion and the Expected Utility Value criterion to decision making
Given attribute cutoffs of Price = 5, Quality = 5, and Weight = 4, which of the following would be chosen using the disjunctive decision rule? Price Quality Ease of Use Multiple Choice HP HP 5 3 3 Dell Dell Samsung 4 4 3 3 Samsung 5 ны Samsung and Dell would be considered further. 1 Samsung and HP would be considered further.
Read the following article, which introduces the concepts of expected value and optimal decision making. Then answer the question that follows. EXPECTED VALUE AND OPTIMAL DECISION MAKING, BY THE APLIA ECONOMICS CONTENT TEAM As an alternative to raising property taxes in order to increase revenue, the village of Port Chester, New York, recently increased parking meter rates by 25% and also raised parking fines. According to an article from the lohud.com news site (Gabriel Rom, "Port Chester Increases Parking Costs, Fines," lohud.com, May 2, 2017), officials are hoping that the increased parking costs will yield an additional $500,000 in revenue for the village. Although in the past drivers may have been more willing to risk parking illegally, the optimal behavior for Port Chester drivers may have changed as the cost of a ticket has risen. Undoubtedly, some motorists will continue to take certain "gambles," perhaps risking a ticket for illegal parking in exchange for the benefit of saved…