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BADM 710 - Chapter 7 Questions with Explanations of Answers | latest upate 2024
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BADM 710 - Chapter 7 Questions with Explanations of Answers | latest upate 2024
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BADM 710 - Chapter 7Sensitivity Analysis - ANS-- Analysis of the effects on project profitability of changes in sales,
costs, etc.
- This can help to compute NPV under various forecasts under individual inputs, this helps tell
us which variables are critical to NPV and how sensitive the NPV is
- Also called: Best, Optimistic, Pessimist analysis (BOP analysis)
CONS:
-How do you consistently define pessimistic, and optimistic?
-Managers could have an optimistic view of a pessimistic forecast
-Looks at only one variable at a time when in reality one bad variable could affect other
variables negatively
Variable Costs - ANS-- A cost that varies directly with volume and is zero when production is
zero
Fixed Costs - ANS-- A cost that is not dependent on the amount of goods or services produced
during the period
Scenario Analysis - ANS-- Analysis given a particular combination of assumptions
- Analysis of the effect on a project of different scenarios with each scenario involving many
variable changes
Break-even Analysis - ANS-- Analysis of the level of sales at which a project would earn zero
profit/break-even
Contribution Margin - ANS-- Amount that each additional sale contributes to the profit of the
whole project
- Price - Variable Cost = Contribution Margin
Monte Carlo Simulation - ANS-- Estimation of the probabilities of different possible outcomes
- An exercise that generates possible outcomes for a project based on a model of the underlying
factors that drive project performance
- This is an extension of a scenario analysis
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