Chapter 12, Problem 9Q

a)

Summary Introduction

To explain: The sensitivity analysis.

Introduction:

Sensitivity Analysis:

The process to evaluate the effect of change in one variable on the end result of a project is called sensitivity analysis. It reflects the change in net present value with respect to change in an input unit with other variables remain constant.

Scenario Analysis:

The process to evaluate different probable events and their outcomes that is end result of a project is called scenario analysis. It reflects the level of end result with multiple estimates called scenario categorized as base, best, and worst case scenario.

Simulation Analysis:

Simulation analysis is an extended version of sensitivity analysis that has improved the evaluation process as it considers detailed inputs. It can record the effect of changes in multiple input variables at once.

b.

Summary Introduction

To explain: The scenario analysis

Introduction:

Scenario analysis is the process to reflect the outcome in different probable scenarios. It changes the estimates based on the depended factors.

c.

Summary Introduction

To explain: The simulation analysis and the project on which the simulation will be applied.