Ace Consulting, a multinational corporate finance consulting firm, is analyzing the profitability of a new line of superconductors designed by Clay Industries, a large industrial firm. In their analysis, Ace Consulting has developed a detailed statistical model that generates random values for key variables, and these random numbers are incorporated into the analysis. Using this proprietary statistical software, Ace Consulting is allowed to formulate a computer-based model of the superconductor's expected cash flows and NPV, given any randomly selected value for seven essential variables. Which of the following choices best describes this technique for measuring stand-alone risk?
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A. B. C. D. E. F.B
In this example, Ace Consulting has developed a statistical model which generates random values for seven key variables. Using this information, Ace can provide
Clay Industries with an expected range of NPV and IRR for any assumed variable values. This process is referred to as Monte Carlo simulation, and is so named because the first Monte Carlo models were incorporated into the mathematical analysis of Casino gambling.