A Firm Prefers to Assume a Probability Distribution Concerning Each

question 34

Multiple Choice

A firm prefers to assume a probability distribution concerning each of the major inputs for the net present value of a project and then randomly draw those inputs over and over again until a distribution is generated for the net present value of an entire project.The firm is performing

• A) a Monte Carlo analysis on its projects.
• B) sensitivity analysis on its projects.
• C) a scenario analysis on its projects.
• D) none of the above.

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Definitions:

Work

A physical or mental activity that accomplishes or produces something, either goods or services.

Globalization

The growth and spread of investment, trade, production, communication, and new technology around the world.

Spread of Investment

The diversification of investments across different sectors, assets, or geographies to reduce risk and achieve a more stable return.

Production

The process of creating goods and services through the combination of labor, materials, and technology.