ADMS 3530 Chapter Notes - Chapter 10: Scenario Analysis, Net Present Value, Sensitivity Analysis
Document Summary
Chapter 10: project analysis: capital budget: list of planned investment projects, project authorization: getting permission to proceed with project by drawing out information. What if = questions that ask what will happen to a project in various circumstances. Sensitivity analysis: analysis of the effects of changes in sales, costs, and so on, on project profitability. Fixed costs: costs that do not depend on the level of output. Variable costs: costs that change as the level of output changes. Uses optimistic to pessimistic range and values and then evaluate the resulting npvs. Limits: gives somewhat ambiguous results, underlying variables are likely to be interrelated. Scenario analysis: project analysis given a particular combination of assumptions (multiple variables are changed) Best case, worse case, and most likely. Usually uses cost and revenue rather than optimistic to pessimistic. Simulation analysis: estimation of the probabilities of different possible outcomes for example, from an investment project.