A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the key aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?
A) Sensitivity analysis; to identify the key variable that affects a project's profitability
B) Scenario analysis; to guarantee each project will be profitable
C) Cash breakeven; to ensure the firm recoups its initial investment
D) Accounting breakeven; to ensure each project earns its required rate of return
E) Financial breakeven; to ensure each project has a positive NPV

Question

Quizplus · Accepted Answer

Sensitivity analysis helps identify the key variable that has the most significant impact on a project's profitability. By focusing on this critical aspect, the managers can ensure that they maximize their firm's value by making informed decisions about managing that specific variable.

A Firm's Managers Realize They Cannot Monitor All Aspects of Their