The more sensitive a project is to changes in cash flows,the riskier it is.

Question

Quizplus · Accepted Answer

This statement is true. Sensitivity to changes in cash flows is one aspect of financial risk, which refers to the likelihood that an investment or project will generate lower-than-expected returns or losses due to factors such as changes in market conditions, interest rates, inflation, or cash flows. A project that is highly sensitive to changes in cash flows is more vulnerable to financial risk because it may have difficulty meeting its financial obligations or achieving its goals if cash inflows decrease or become unpredictable. Therefore, investors and managers should carefully assess the cash flow sensitivity of a project when making decisions about its feasibility, profitability, and risk.

The More Sensitive a Project Is to Changes in Cash