Economics Capital Budgeting Questions
Scenario analysis is a technique used in capital budgeting to assess the potential impact of different future scenarios on a project's financial performance. It involves creating multiple scenarios by varying key assumptions such as sales growth, costs, and market conditions, and then analyzing the resulting financial outcomes. By considering various scenarios, decision-makers can gain insights into the project's sensitivity to different factors and make more informed investment decisions. This analysis helps in identifying potential risks and opportunities associated with the project and enables better evaluation of its feasibility and profitability.