Question

Which of the following is not true regarding the use of simulation in multinational capital budgeting? a. It can be used to generate a probability distribution of NPVs. b. It can only be used for one variable at a time. c. It generates a probability distribution of NPVs by randomly drawing values for the input variable(s). d. It can be used to develop probability distributions of all variables with uncertain future values.

Answer 1

b. It can only be used for one variable at a time is the false statement regarding the use of simulation in multinational capital budgeting.

Explanation:

The process of determining the net present value of the project is known as multinational capital budgeting. The capital budget can be determined by estimating the present value of cash flow in the project and subtracting the initial expenditure required for the projects.

When considering the use of simulation in multinational capital budgeting, it can be used for many variables at a time.

The flow of cash is focused in the long-term investment projects. Multinational capital budgeting can help in determining investment opportunity of the company.