Management and Organizational Studies 2310A/B Chapter Notes - Chapter 11: Monte Carlo Method, Scenario Analysis, Net Present Value

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Shang Tang

Document Summary

The more sensitive, the greater the forecasting risk: consider competition, sources of value- why does this project create value, how competitors will affect cash flow, competitive market- less susceptible to change than niche market. If the majority of your scenarios have positive npvs, then you can feel reasonably comfortable about accepting the project. If you have a crucial variable that leads to a negative npv with a small change in the estimates, then you may want to forego the project. If accounting breakeven doesn"t work, then npv definitely work: finding units sold: find how many we have to sell for each method, accounting break-even. If a project can"t break-even on an accounting basis, then it is not going to be a worthwhile project: accounting break-even gives managers an indication of how a project will impact accounting profit. If a firm just breaks-even on an accounting basis, cash flow = depreciation.