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. Elle is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new project that her company is considering investing in. Her risk analysis report includes the sensitivity curve shown on the graph. ? O Base Case NPV - NPV (Millions of dollars) Base Case Units Sold -20 -15 15 20 -10 -5 0 5 10 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 Along with the sensitivity analysis, Elle 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 NPV) Probability (P) Pessimistic -$3.50 million 0.20 Most likely $5.62 million 0.45 Optimistic $11.34 million 0.35 Probability Data for z 0.03 0.06 0.09 Z -1.0 0.1515 0.1446 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 Complete the missing information in Elle's report: (Note: Round your answers to two decimal places.) million. The expected net present value of the project is 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 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. Elle is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new project that her company is considering investing in. Her risk analysis report includes the sensitivity curve shown on the graph. ? O Base Case NPV - NPV (Millions of dollars) Base Case Units Sold -20 -15 15 20 -10 -5 0 5 10 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 Along with the sensitivity analysis, Elle 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 NPV) Probability (P) Pessimistic -$3.50 million 0.20 Most likely $5.62 million 0.45 Optimistic $11.34 million 0.35 Probability Data for z 0.03 0.06 0.09 Z -1.0 0.1515 0.1446 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 Complete the missing information in Elle's report: (Note: Round your answers to two decimal places.) million. The expected net present value of the project is 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 chance to generate an NPV of less than $0