FIN 5643 Valuation Week 3 Questionnaire

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Pro-forma statements, according to the authors, are not highly uncertain.
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Terms in this set (27)
Breakeven sensitivity analysis determines the value of a variable that results in an IRR of zeroFalseThere is no information on probabilities in scenario analysisTrueThe following types of distribution are commonly used in Monte Carlo simulationUniform and TriangularAn advantage of Monte Carlo simulation over scenario analysis is that probabilities are includedTrueEstimates of the sales values to be used in MC simulation come, in most cases, from the_________ ___ ________ of the firm s marketing staffIntuition and ExperienceInformation from experts is used to determine the nature of the distribution to select the estimates of the parametersTrueParameters of a uniform distribution are Min and MaxTrueParameters of a triangular distribution are Min, Most Likely, and MaxTrueIf two variables are related, Monte Carlo simulation will reflect this relationshipTrueA triangular distribution reflects a lower level of uncertainty than a uniform distributionTrue Response Feedback Because in a triangular distribution there is a most likely valueA tornado diagram in Crystal Ball helps to identify value driversTrueMonte Carlo simulation like breakeven sensitivity analysis can be used to identify critical variablesFalseDecision trees can be used to value project flexibilityTrueProject flexibility is the ability to make decisions during the implementation of a project that will affect the FCF of the projectTrueThe abandonment option is related to option pricing theoryTrueThe following risk analysis tool consider only one value driver at a timeBreakeven sensitivity analysis Response Feedback Actually, scenario analysis can be performed with only one value driver. Value driver - a variable that drives profitability (in the case of project investment analysis) or value (in the case of valuationAccording to the textbook, the following factors play a critical role in the evaluation of investments (Select the best answer)Judgement and Experience