Question

Which one of the following is a correct value to use if you are conducting a best-case scenario analysis? Sales price that is most likely to occur. A) Lowest expected level of sales quantity. B) Lowest expected salvage value. C) Highest expected need for net working capital. D) Lowest expected value for fixed costs

Answer 1

Answer:

The correct option here is D) lowest expected value for fixed costs.

Explanation:

Best case scenario analysis is that type of scenario analysis which is used to take out the expected value of the investment , here in this type of scenario we are trying to estimate what would be the highest Net present value that can be attain if all the things go in best way like all variables are at highest attainable values.

Option a) is incorrect because according to best case scenario sales should be at highest value, same way option b) is incorrect because salvage value should be at highest attainable value.

option c) is incorrect because to have highest net present value , you will need less working capital , as if there is high working capital it means cash outflow is more and then net present value is not at its best value.

option d) is correct because to have highest possible net present value , you will need to have less fixed cost.