Management and Organizational Studies 2310A/B Study Guide - Final Guide: Monte Carlo Method, Scenario Analysis, Sensitivity Analysis

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nicholas Kahnert

Document Summary

Basic problem of projections is that we can use them to make decisions, but they are never concrete and they could sway us in the wrong direction. This chapter is to assess the economic reasonableness of our estimates, as well as consider how much damage could be caused by an error in those estimates. Base case: estimating npv based on projected cash flows provided. If we based projection on, let"s say, a forecasted sales amount, we can conduct analyses by showing a high and low scenario or high bound and. * these are low estimates and high estimates, so reality could fall outside. Scenario analysis scenario analysis: what happens to the npv estimates if we ask the. If a lot of scenarios look bad, the degree of forecasting risk is high and more investigation is required: we let all variables change, but only a small number of values.