Week 3 Project Analysis

Sensitivity Analysis

A method that shows how the project NPV is affected by changes in one variable at a time.

Scenario Analysis

A project analysis based on different combinations of assumptions to understand how a project might perform under various variables changes.

Monte Carlo Simulation

A statistical technique that allows for the consideration of all possible combinations of input variables to understand potential outcomes.

NPV Break-Even Analysis

Cash flows of the project that taken the time value of money, to achieve NPV = 0 if project turn sour.

Operating Leverage

The extent to which a firm uses fixed costs in its operation; higher fixed costs result in higher operational risk but can also increase potential profitability.

Real Options

Options that provide managers the flexibility to modify project decisions based on changing market conditions, thus adding potential value.

Accounting Break-even analysis

The amount of sale volume in units needed to cover losses, having zero profits and does not taking the time value of money.