COM 240 Chapter Notes - Chapter 11: Scenario Analysis, Net Present Value, Sensitivity Analysis
28 Mar 2017
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Com 240 - chapter 11: project analysis & evaluation: forecasting (estimation) risk: the probability that error in projected cash ows lead to incorrect decisions. Danger that we think a project has a positive npv when it really does not. Occurs when projected cf"s do not realistically re ect the possible future cf"s. Positive npv investments are not all that common, & your estimate then should be viewed with some suspicion: base case: beginning by estimating npv based on our projected cf"s. Then investigate the impart of different assumptions about the future on our estimates: scenario analysis: the determination of what happens to npv estimate when we ask what-if questions. Look at a variety of alternative scenarios & determine if the majority lead to positive or negative nvp"s. Let all the variables change, but only look at a small number of values. Start by determining the worst case (lowest npv) & best case (highest npv) scenarios.
