The objective of sensitivity analysis in capital budgeting is to determine how sensitive the NPV is to alternative values of the input variables

Question

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Sensitivity analysis is used to determine how changes in the input variables affect the output variable, which in capital budgeting is the NPV (Net Present Value). By testing alternative values of the input variables, one can identify the most critical variables and evaluate how their changes impact the NPV. Thus, the objective of sensitivity analysis is to quantify the degree of sensitivity of the NPV to changes in input variables.

The Objective of Sensitivity Analysis in Capital Budgeting Is to Determine