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Why May an Analysis That Makes Even a Rough Estimate

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Why may an analysis that makes even a rough estimate of the probability distribution of project NPV or IRR be infinitely more valuable to management than a point estimate? Why are scenario and especially decision tree analysis particularly valuable with regard to this issue?


Definitions:

Short-run Aggregate Supply

The total supply of goods and services that firms in an economy are willing to produce at a given overall price level in a specific time period.

Aggregate Quantity Demanded

The aggregate quantity of a product or service that buyers are prepared and capable of buying at a specific price point within a certain time frame.

Stagflation

An economic condition characterized by stagnant economic growth, high unemployment, and high inflation.

Price Level

The economy’s general price level across its full range of goods and services.

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