Question: QUESTION 1 (25 MARKS) (a) Explain the different between sensitivity and scenario analysis with example. (8 marks) (b) Assume a firm is considering a new

QUESTION 1 (25 MARKS)

(a) Explain the different between sensitivity and scenario analysis with example. (8 marks)

(b) Assume a firm is considering a new project that requires an initial investment and has equal sales and costs over its life. Elaborate on the accounting, cash, or financial break-even point. Justified which breakeven it will reach first, second and the last. Will this ordering always apply? (10 marks)

(c) Explain business risk and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital? (7 marks)

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