Natick Nurseries Has Used Scenario Analysis to Evaluate the Purchase

question 29

Multiple Choice

Natick Nurseries has used scenario analysis to evaluate the purchase of a former dairy to use for nursery stock. The best case scenario produced a very favorable NPV of $4,000,000; the NPV of the most likely case was $2,000,000, but the worst case scenario resulted in an NPV of $(3,000,000) which would bring the company close to bankruptcy. Natick could improve its decision by

• A) using sensitivity analysis.
• B) using simulation analysis.
• C) simply accepting the best case scenario and rejecting the other outcomes.
• D) weighting the favorable scenarios more heavily to increase the expected NPV.

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Definitions:

Total Revenue

The total amount of money a company receives from its sales of goods or services, calculated before any expenses are subtracted.

Relatively Elastic

Describes a situation in which the quantity demanded of a good or service changes significantly due to a change in its price.

Time Interval

A specific duration or period between two points or events in time.

Substitutes

Substitutes are goods or services that can replace each other in usage, providing consumers with alternative choices when purchasing.