What is the base-case profit estimated for Sanotronics LLC?

• A. $1,000,000.
• B. $710,000.
• C. $0.
• D. $2,000,000.

Answer: (B)

In risk analysis, the base-case profit is the profit outcome using the baseline, most-likely values for all inputs. It’s the anchor you compare other scenarios against—the central estimate you’d expect if every assumption turns out as planned.

For Sanotronics LLC, the baseline assumptions lead to a profit of $710,000. That figure represents the central scenario's outcome given the expected revenues, costs, taxes, and investments in the base case.

The other dollar amounts would require inputs to be more favorable or less favorable than the baseline (for example, higher revenue or lower costs than the central assumptions, or the opposite). In a Monte Carlo framework, you then explore how deviations around this base-case affect the profit distribution, but the base-case itself stays as the core reference point.