Using Monte Carlo Simulation for a Capital Budgeting Project

Clark, Virginia; Reed, Margaret; Stephan, Jens
November 2010
Management Accounting Quarterly;Autumn2010, Vol. 12 Issue 1, p20
Academic Journal
The article focuses on the effectiveness of using Monte Carlo simulation for the capital budgeting project of a company. While many tools that are useful in determining the scope and possible success of a project, it notes that Monte Carlo provides understanding and risk analysis to managers by mapping all possible outcomes of a project. It notes that the method also allows managers to determine risks and uncertainties of discounted cash flow (DCF). It mentions that the method overcomes the limitations of sensitivity and scenario analyses through examination of effects of all combinations of variables and their realizations.


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