Sensitivity analysis is the form of risk analysis
A) that examines the relationship between total firm cash flows and the NPV of a particular project.
B) that examines the volatility of NPV.
C) that examines the impact of key variables such as sales or costs in various combinations.
D) that examines the impact of key variables such as sales or costs one at a time.

Question

Quizplus · Accepted Answer

Sensitivity analysis examines the impact of key variables such as sales or costs one at a time. It does not examine the relationship between total firm cash flows and NPV (A) or the volatility of NPV (B), although these concepts may be related. Sensitivity analysis also does not examine the impact of key variables in various combinations (C).

Sensitivity Analysis Is the Form of Risk Analysis