Question

1. Sensitivity analysis examines the impact of _______ on a decision criterion, such as NPV.

changing several variables

holding all variables constant

NPV sensitivity

changing one variable

2.

Scenario analysis examines the impact of _______ on a decision criterion, such as NPV.

analytical scenarios

changing several variables

holding all variables constant

changing one variable

3.

What is the main benefit of doing a sensitivity analysis?

It helps determine the appropriate discount rate.

It prevents incorrect project decisions.

It identifies the variables that have the strongest effect on cash flows.

It shows the outcome when a set of variables changes.

Answer #1

1. The answer to the first question is - changing one variable

This is because sensitivity analysis focuses on the effect on change in the dependent variable given a change in one risk factor(independent variables)

2. The answer to second question is - changing several variables

This is because scenario analysis provides an estimate of change in dependent variable due to change in several independent variables.

3. The answer is - it shows the outcome when a set of variables changes

This is because it can be used to analyse the impact of change in the dependent variable after changing multiple independent variables

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