Which of the following statements is FALSE?
A) Sensitivity analysis allows us to explore the effects of errors in our estimated inputs in our net present value (NPV) analysis for the project.
B) To compute the net present value (NPV) for a project, you need to estimate the incremental cash flows and choose a discount rate.
C) Estimates of the cash flows and cost of capital are often subject to significant uncertainty.
D) When we are certain regarding the input to a capital budgeting decision, it is often useful to determine the break-even level of that input.

Question

Quizplus · Accepted Answer

The statement D is false because break-even analysis is used to determine the level at which a project or a business starts to generate a profit, not specifically when there is certainty regarding the input to a capital budgeting decision. Break-even analysis is useful under conditions of uncertainty to understand how changes in inputs affect outcomes, not just when inputs are certain.

Which of the Following Statements Is FALSE