Paper Topic:

financial management 534

Financial Management 534

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Date Scenario analysis is the assessment of the possible future results of a situation by exploring the various expected outcomes . Scenario analysis starts with the possible scenarios that are expected to occur . The scenario analysis should include the evaluation of many factors numerical , visualization and relational

Scenario analysis is used to make decisions based on the expected future occurrences

Despite the helpful nature of the scenario analysis technique , it has some drawbacks , which include

It is a time

consuming and expensive technique . It is time consuming in that all the possible scenarios are evaluated and analyzed so as the future occurrences are well predicted . Analyzing all these scenarios needs the use of a lot of resources

The various future outcomes predicted using the scenarios analysis should not be a business should not rely absolutely on the results of scenario analysis to chart their operations

Scenario analysis is a subjective method if few factors are considered This is because it only analyses those scenarios that are likely to occur . Hence to improve on its objectivity when conducting a scenario analysis , one should consider all factors

There is also no uniform identification of the possible future outcomes in a scenario analysis due to the difficulties of using simultaneous trends and counter trends

Simulation

Simulation is the copying ' of the actual occurrence , happening or process . It performed by taking the possible expected conditions and subjecting them to a process so as to get the possible outcomes . It is used to analyze dangerous missions , space exploration or scenarios where the outcomes are not certain . An example of simulation technique is the Monte Carlo system

Some of the advantages of performing simulation analysis are

It enables the analysis of the behavior of a process without actually going through the actual process . This is especially important for testing new procedures e .g . a new surgical procedure

In most cases , the results of simulation process are almost accurate compared to the actual process . Hence it is able to present reliable information that can be used for decision-making

Uncertain events are normally explored using simulations analysis . It helps the analyst to get an idea of the possible outcomes in an uncertain environment without actually going through it

Another advantage of simulation analysis is that it is easy to perform and hence it provides an effective analysis of simulations or processes easily

Simulation however , has disadvantages some of which are

The simulation models needs to be built . The building of these models is usually an expensive undertaking hence small companies may not be able to use simulation

The simulation process itself is very expensive because in a simulation all the factors are considered and collecting the required data is expensive

Since the simulation process considers all possible outcomes the results produced are in many cases huge . The interpretation of these outcomes is difficult and may take time , which may make the information irrelevant

Question 2

Alesco Financial Inc (AFN ) is an investment...

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