Consider a project with uncertain cash flows where sales volume and unit price are both variable. If you were to use Monte Carlo Simulation to evaluate the project’s NPV, which of the following best describes how you would incorporate these uncertainties into the simulation?

Question

Accepted Answer

Define probability distributions for both sales volume and unit price, generate random samples for each variable in each simulation run, and calculate NPV accordingly.

Answer

Assign fixed worst-case and best-case values to both sales volume and unit price, then calculate NPV for each combination.

Answer

Vary sales volume while keeping unit price constant, then vary unit price while keeping sales volume constant in separate simulations.

Answer

Use historical average values for sales volume and unit price without considering their variability.

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Consider a project with uncertain cash flows where sales volume and unit price a...

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