boken kap 8 del 2

Question 1

1. What is the goal of Monte Carlo simulation?

Answer 1

To model real-world uncertainty by generating multiple possible outcomes.

Question 2

2. What are the key steps in Monte Carlo simulation?

Answer 2

1) Specify the basic model, 2) Specify a distribution for each variable, 3) Draw one outcome, 4) Repeat the procedure, 5) Calculate NPV.

Question 3

3. What variables are included in the basic model of Monte Carlo simulation?

Answer 3

Annual revenue, annual costs (fixed, variable, marketing, selling), and initial investment (patents, test marketing, production facility costs).

Question 4

4. How are future revenues estimated in Monte Carlo simulation?

Answer 4

By considering units sold in the industry, market share, pricing, and industry growth.

Question 5

5. What is the result of repeating the Monte Carlo simulation multiple times?

Answer 5

A statistical distribution of possible outcomes.

Question 6

6. How is NPV calculated in Monte Carlo simulation?

Answer 6

By estimating expected cash flows for future years and discounting them at an appropriate rate.

Question 7

7. What is the main limitation of traditional NPV analysis that real options address?

Answer 7

Traditional NPV analysis ignores strategic adjustments a firm can make after accepting a project.

Question 8

8. What are real options in investment analysis?

Answer 8

They represent the strategic flexibility to adjust a project after it has started.

Question 9

9. What is the “option to expand”?

Answer 9

Investing in a project with a negative NPV initially because of the potential for future expansion.

Question 10

10. What is the “option to abandon”?

Answer 10

The ability to abandon a failing project to minimize further losses. You can sometimes use the possibilities of abandonment when calculating the NPV.

Question 11

12. What is a decision tree in investment analysis?

Answer 11

A way to model an investment as a series of real options, considering multiple possible outcomes.

Question 12

13. How does a decision tree determine whether to proceed with testing?

Answer 12

(Probability of success × NPV if successful) + (Probability of failure × NPV if failure).

Question 13

14. When should a project proceed with testing according to decision tree analysis?

Answer 13

If the expected NPV calculated from the probabilities is positive.