6. Sensitivity and scenario analysis Different techniques for analyzing project risk require different input variables and assumptions. in the Suppose you are using the sensitivity 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 Zhi is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new proje one input variable at a time investing in. Her risk analysis renort includes the sensitivity curve shown on the aranh Zhi 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. ? 0, 4.8 NPV (Millions of dollars) Base Case NPV -30 -24 Base Case Price -18 -12 0 12 18 CHANGES IN SELLING PRICE (Percent) 24 30 This curve implies that the project is very sensitive to changes in the price of the product. The project's NPV is likely to become negative if the price for which the product can be sold decreases by 8% Along with the sensitivity analysis, Zhi is includi enario analysis for the project in her report, giving the probability of the project generating a negative NPV. Her report includes the following 12% tion 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 Complete the missing information in Zhi's report: 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) million. This curve implies that the project is very sensitive to changes in the price of the product. The project's NPV is likely to become negative if the price for which the product can be sold decreases by Along with the sensitivity analysis, Zhi 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;) 0.20 Pessimistic -$3.50 million Most likely $5.62 million 0.4 $5.80 million 0.3 Optimistic $11.34 million $1.93 million $2.66 million Complete the missing information in Zhi's report $1.03 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) million. This curve implies that the project is very sensitive to changes in the price of the product. The project's NPV is likely to become negative if the price for which the product can be sold decreases by Along with the sensitivity analysis, Zhi 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: Probability (P;) Data Collected NPV; -$3.50 million $5.62 million $11.34 million Outcome Pessimistic Most likely Optimistic 0.20 0.45 0.35 $7.13 $6.56 Complete the missing information in Zhi's report: $5.30 The expected net present value of the project is $6.16 Standard deviation of the net present value (the NPV of the project is likely to vary by) million