Answer:
Scenario analysis
Explanation:
When you are trying to evaluate one or more possible investment projects, then it is always best to try to identify a range of potential different and reasonable outcomes.
We should start with a scenario that should be the most likely to occur and use its values as a base for comparing different possibilities. This base scenario should give us a positive NPV, if it doesn't there is no need to continue.
Then we can do a more optimistic analysis, for example, what if our sales are 15% higher than expected and / or our costs are 15% lower than expected. This should give us a higher NPV.
Finally we can proceed to do a very pessimistic analysis, where are sales are 15% lower and / or our costs are 15% higher. At what point will the project's NPV become negative.
After we have analyzed these 3, 5 or 7 scenarios (depending on the complexity of the project) we should try to determine how possible are these scenarios.
This type of analysis also gives us a guideline about what to expect especially don't go as planned.
