The purpose of sensitivity analysis is to show:
A) the optimal level of the capital budget.
B) how price changes affect break-even volume.
C) seasonal variation in product demand.
D) how variables in a project affect profitability.

Question

Quizplus · Accepted Answer

Sensitivity analysis is used to determine how changes in certain variables in a project can affect its profitability. A sensitivity analysis chart shows the impact of changes in different scenarios based on changes in certain variables, such as cost, price, or volume. It helps managers to understand the level of risk and uncertainty associated with a project and to make informed decisions. Options A, B, and C are not the primary purposes of sensitivity analysis.

The Purpose of Sensitivity Analysis Is to Show