Description
Just a business brief like the example I attached.
Example of Business Brief
To: Joe Instructor
From: Ron Student
Subject: Case 3B-4, p.170
Date: 06/24/2014
Business Brief
The purpose of this business brief is provide two scenario’s in which the project with the lower Net Present
Value (NPV) may be more beneficial when compared to a project with a higher NPV. The brief will describe
how lower NPV projects may be elected based on the results of the partial sensitivity analysis or the worst-best
case scenario’s.
Sensitivity analysis
Typically speaking choosing a project with a lower Net Present Value is not suggested. However in certain
scenario’s this maybe the preferred method. One of those scenario’s occurs based on the findings of the partial
sensitivity test. The purpose of the sensitivity test according to Boardman, Greenberg, Vining, and Weimer
(2011) is to “acknowledge the underlying uncertainty”. It is plausible that once the test is performed that the
values may change and the project with the lower NPV originally may choose to be more beneficial.
Worst case scenario
In looking at two projects in which there is one that has a higher NPV then performing a worst case scenario
analysis may provide additional insight for choosing the lower NPV project. According to Broadman,
Greenberg, Vining, and Weimer (2011) the worst case scenario analysis is “generally most valuable when the
expected net benefits are positive; best-case analysis is generally most valuable when expected net benefits are
negative”. Understanding this logic, it is plausible that a project with a higher NPV may also have a more
downside risk which may result in a more extreme worst-case scenario.
Preferred method
Based on the rationale provided the suggested method for deciding to choose a project with a lower NPV should
be evaluated after a worst-best case scenario analysis has been completed. The worst case scenario will provide
additional insight when both NPV’s are positive and difference in NPV’s are not excessive. The worst case
scenario also allows for the consideration or extreme.
References
Boardman, A., Greenberg, D., Vining, A,. & Weimer, D. (2011). Cost-Benefit analysis: Concepts and practice.
(4thed). Boston, MA: Prentice Hall. p.31
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