4. Sensitivity and scenario analysis Different techniques for analyzing project risk require different input variables and assumptions in the Suppose you are using the scenario analysis technique to evaluate project risk. You would change model to evaluate the effect of the input factors on the expected value several input variables together Danielle is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new one input variable at a time dering investing in. Her risk analysis report includes the sensitivity curve shown on the graph. ase Case NPV Base Case Units Sold 20 15 10 5 5 10 15 20 CHANGES IN UNITS SOLD (Percent) This curve implies that the project is very sensitive to changes in units sold. The project's NPV is likely to become negative if the number of units sold decreases by 5% Along with th a negative NF 1096 eport includes the following information about the scenario analysis: vity analysis, Danielle is including a scenario analysis for the project in her report, giving the probability of the project generating Along with the sensitivity analysis, Danielle is including a scenario analysis for the project in her report, giving the probability of the project generating a negative NPV. Her report includes the following information about the scenario analysis: Data Collected Outcome Pessimistic $3.50 million Most likely $5.62 million Optimistic $11.34 million Probability (P) 0.20 0.45 0.35 NPV Probability Data for z 0.03 0.06 0.09 -1.0 0.15150.1446 0.1379 -0.8 0.2033 0.1949 0.1867 -0.6 0.2643 0.2546 0.2451 -0.4 0.3336 0.3228 0.3121 $1.93 million $2.66 million $5.80 million $1.03 million Complete the missing information in Danielle's re nd your answers to two decimal places.) The expected net present Standard deviation of the net present value (the NPV of the project is likely to vary by) Assuming that probability distribution is normal, the value of z is Thus, the project has a value of the project is million chance to generate an NPV of less than $0 4. Sensitivity and scenario analysis Different techniques for analyzing project risk require different input variables and assumptions in the Suppose you are using the scenario analysis technique to evaluate project risk. You would change model to evaluate the effect of the input factors on the expected value several input variables together Danielle is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new one input variable at a time dering investing in. Her risk analysis report includes the sensitivity curve shown on the graph. ase Case NPV Base Case Units Sold 20 15 10 5 5 10 15 20 CHANGES IN UNITS SOLD (Percent) This curve implies that the project is very sensitive to changes in units sold. The project's NPV is likely to become negative if the number of units sold decreases by 5% Along with th a negative NF 1096 eport includes the following information about the scenario analysis: vity analysis, Danielle is including a scenario analysis for the project in her report, giving the probability of the project generating Along with the sensitivity analysis, Danielle is including a scenario analysis for the project in her report, giving the probability of the project generating a negative NPV. Her report includes the following information about the scenario analysis: Data Collected Outcome Pessimistic $3.50 million Most likely $5.62 million Optimistic $11.34 million Probability (P) 0.20 0.45 0.35 NPV Probability Data for z 0.03 0.06 0.09 -1.0 0.15150.1446 0.1379 -0.8 0.2033 0.1949 0.1867 -0.6 0.2643 0.2546 0.2451 -0.4 0.3336 0.3228 0.3121 $1.93 million $2.66 million $5.80 million $1.03 million Complete the missing information in Danielle's re nd your answers to two decimal places.) The expected net present Standard deviation of the net present value (the NPV of the project is likely to vary by) Assuming that probability distribution is normal, the value of z is Thus, the project has a value of the project is million chance to generate an NPV of less than $0