Question

The best definition of sensitivity analysis is: Multiple Choice The possibility that errors in projected cash...

The best definition of sensitivity analysis is:

Multiple Choice

  • The possibility that errors in projected cash flows lead to incorrect decisions.

  • The determination of what happens to NPV estimates when we ask what-if questions.

  • A combination of scenario and sensitivity analyses.

  • A combination of statistical and probabilistic analysis.

  • Investigation of what happens to NPV when only one variable is changed.

Homework Answers

Answer #1

The best definition of sensitivity analysis is the determination of what happens to NPV estimates when we ask what if questions

> Sensitivity analysis is the analysis of target variables with respect to the final outcome

> for example: in case of NPV calculation the varibales are given NPV will be calculated with given variables range and the final outcome sensitivity will be calculated with respect to variables

> This is also called as what if analysis or simulation model

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