Sensitivity analysis is the term used to describe the process of examining the effects on the net present value of a project when:
A) The lower bounds of each variable are contrasted with the respective base values.
B) The most optimistic situation that is obtainable is presented.
C) All the variables are set to create a best or a worst case situation.
D) The sales quantity and price are set at the ﬁnancial break-even level of sales.
E) The value of a single variable is changed.

Question

Quizplus · Accepted Answer

Sensitivity analysis involves changing a single variable to see its impact on the net present value of a project. This helps in identifying the most significant factors that affect the project's profitability and helps in making informed decisions about the project. Therefore, choice E is the best option as it describes the process of sensitivity analysis accurately.

Sensitivity Analysis Is the Term Used to Describe the Process