1. A project is not a black box
“What is sought is found”- Sophocles, Oedipus Tyrannus

2. Project analysis (or understanding what makes a project tick)
Sensitivity analysis
Scenario analysis
Break-even analysis
Monte-Carlo analysis
Decision Trees

3. Sensitivity analysis for Jalopy Motor

4. Break-even analysis for Jalopy Motor
$ million
$ million
4000
PV inflows
Revenues
600
NPV = 0
PV outflows
Profit = 0
2000
Costs
200
200 60
200 85
Scooter sales, 000s
Scooter sales, 000s
... in terms of present values in terms of accounting profit

5. Monte-Carlo simulation
Simulating a project:
Step Step Step 3
Model the Specify Select numbers for
project probabilities for forecast errors &
forecast errors calculate cash flows

6. Decision trees The electric mop example
NPV = /.10 = +$1500
Invest $1000 for full-scale production q
Success (1/2)
Don’t invest
NPV = 0 l
STOP
Test (invest $125)
NPV = /.10 = -$250
Failure (1/2)
Invest $1000 for full-scale production q q
Don’t test
Don’t invest
STOP
STOP
NPV = 0