An investigation of the degree to which NPV depends on assumptions made about any singular critical variable is called a(n):
A) operating analysis.
B) sensitivity analysis.
C) marginal benefit analysis.
D) decision tree analysis.
E) None of these.

Question

Quizplus · Accepted Answer

A sensitivity analysis evaluates the degree to which the net present value (NPV) of a project is affected by changes in a single variable, often called the critical variable. Operating analysis involves evaluating the production efficiency of a firm. Marginal benefit analysis involves comparing the costs and benefits of a proposed project. Decision tree analysis is a tool used to evaluate the potential outcomes of different decision options. None of these options appropriately describes an investigation of the degree to which NPV depends on assumptions about a critical variable.

An Investigation of the Degree to Which NPV Depends on Assumptions