Question

The selling price of recycled cardboard can fluctuate dramatically, depending on the market conditions. By creating models that used different assumptions for the selling price of recycled cardboard but keeping all other inputs in the model the same, the CFO demonstrated the effect of fluctuations in the price of recycled cardboard. Based on the information given, determine which of the statements is correct. The company’s CFO was conducting a sensitivity analysis on the project’s financial model. The company’s CFO performed a scenario analysis on the project’s financial model.

Answer 1

The correct answer is B) The company’s CFO performed a scenario analysis on the project’s financial model.

Based on the information given, the correct statement is "The company’s CFO performed a scenario analysis on the project’s financial model.

The Chief Finacial Officer (CFO) of the company is required to perform many scenario analysis of the market conditions in different circumstances and moments in time, so he can project the possible consequences the product is going to face in the market under different economic conditions. That is why the CFO creates models with different assumptions for the selling price of recycled cardboard but keeping all other inputs in the model the same. This way he demonstrates the effect of fluctuations in the price of recycled cardboard.