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Risk Analysis, Real Options, and Capital Budgeting

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7.1Sensitivity Analysis, Scenario Analysis, and Break-Even Analysis206
Sensitivity Analysis and Scenario Analysis206
Break-Even Analysis210
7.2Monte Carlo Simulation214
Step 1: Specify the Basic Model214
Step 2: Specify a Distribution for Each Variable in the Model214
Step 3: The Computer Draws One Outcome217
Step 4: Repeat the Procedure217
Step 5: Calculate NPV218
7.3Real Options218
The Option to Expand219
The Option to Abandon220
Timing Options222
7.4Decision Trees223
Summary and Conclusions225
Concept Questions225
Questions and Problems226
Mini Case: Bunyan Lumber, LLC232

Ross: Corporate Finance 9eOnline Learning Center

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