There are three ways a manager can try to identify the principal threats to a projects success—sensitivity analysis, scenario analysis, and Monte Carlo simulation. Briefly describe how you would use each technique. (pages 246-256 of the book)
Can you derive optimistic and pessimistic values for total project flows from sensitivity analysis? Why or why not? (page 248 of the book)
What are the advantages of scenario analysis compared with sensitivity analysis? (page 248 of the book)
"Projects that break-even on an accounting basis are really making a loss." What is meant by this statement? (pages 249-251 of the book)
How does an increase in the proportion of costs that are fixed affect a project's breakeven point? (pages 251-252 of the book)
When using Monte Carlo simulation to analyze a project, it is important to specify the correlation between the forecast errors. Explain why and give some examples. (pages 253-255 of the book)
What are the four main types of real options? (pages 258-262 of the book)
What are the main advantages and limitations of decision trees when analyzing projects involving real options? (pages 265-266 of the book)
