Haha, reminds me of that time I tried to calculate the probability of winning the lottery. Spoiler alert: it's not great. But Option D sounds like the way to go here.
This question is making my head spin, but I think Options B and C together would give a pretty comprehensive risk assessment. Better than just guessing, that's for sure!
Ah, classic probability problem. I'd go with Option D - getting a sample range of NPVs and their probabilities could really help paint the picture of the project's risk profile.
Option C is key here - determining the expected value for each cash flow element and the project as a whole is crucial for understanding the potential outcomes.
B) The net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.
A) The company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.
B) The net present value (NPV) of the project, if all high, low or medium estimates occurred, can be calculated along with the combined probabilities of their occurrence.
A) The company can determine a range of possible outcomes for each of the cash flows in the project, for example, a high, low and medium estimate of each cash flow could be determined.
Hmm, using probability analysis to assess project risk seems like a logical approach. Option B looks promising, calculating the NPV for different scenarios and their probabilities could give a good sense of the overall risk.
Denny
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