Which of the following appears to be a more likely result from using sensitivity analysis?
A) Agreement on the appropriate discount rate
B) Determination of whether to finance with debt or equity
C) Isolation of the pivotal factor in project profitability
D) Selection of the best capital budgeting project

Question

Quizplus · Accepted Answer

Sensitivity analysis helps in isolating the pivotal factor in project profitability. It identifies which variable(s) have the most significant impact on the project's profitability and helps to understand the critical assumptions and risks associated with the project. It does not necessarily help in determining the discount rate, financing decisions, or selecting the best capital budgeting project.

Which of the Following Appears to Be a More Likely