The Difference Between Scenario Analysis and Sensitivity Analysis Is That

question 58

Multiple Choice

The difference between scenario analysis and sensitivity analysis is that:

• A)scenario analysis is based upon the IRR and sensitivity analysis is based upon NPV.
• B)only sensitivity analysis allows us to change our estimated inputs of our NPV analysis.
• C)only scenario analysis considers the effect on NPV of changing multiple project parameters.
• D)only scenario analysis breaks the NPV calculation into its component assumptions.

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Definitions:

Endowment Effect

The phenomenon in which individuals value an owned object higher than its market value simply because they own it.

Prospect Theory

Prospect Theory is a behavioral economic theory that describes how people choose between probabilistic alternatives involving risk, where the probabilities of outcomes are known.

Prospect Theory

A behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are unknown.

Behavioral Economists

Scholars examining how psychological, cognitive, emotional, cultural, and social influences affect the financial choices of individuals and organizations.