Question
In: Finance
Questions: Which of the following is the type of analysis you would most likely use to...
Questions:
- Which of the following is the type of analysis you would most
likely use to assess the impact of arbitrary changes in the
discount rate?
A.Sensitivity analysis
B.Scenario analysis
C.Both
D.Neither
- Which of the following is the type of analysis you would most
likely use to assess the impact of an economic recession?
A.Sensitivity analysis
B.Scenario analysis
C.Both
D.Neither
- Because most of a company's value comes from the terminal
period, we do not have to worry too much about near-term
forecasts.
Answer (True/False)
Solutions
Expert Solution
1) The correct answer is (A) Sensitivity analysis
Sensitivity analysis is where you tweak the one variable and see what is the impact of that on the outcome, so if you want to see what would be the outcome of the arbitrary changes in discount rates so you should be using sensitivity analysis.
Scenario analysis is when you want to change more than one input to see the impact so other option is not correct.
2) The correct answer is (B) Scenario analysis
Scenario analysis is more appropriate when you want to the impact of recession because for that you would have to change more than one input variable.
Sensitivity analysis is more appropriate when you want to change one variable so other options are not correct.
3) False
Terminal growth value is to at certain extent derived from the near-term growth so it is important to have correct estimation about the near term as well as terminal value forecast.
jeff jeffy answered 1 year agoRelated Solutions
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