Sensitivity analysis evaluates projects by:
A)Forecasting changes in interest rates that would increase financing costs
B)Recording profitability changes while changing one variable at a time
C)Insuring that the project sponsor has proper incentives
D)Testing for interrelated variables

Question

Quizplus · Accepted Answer

Sensitivity analysis involves changing one variable at a time to understand how it affects the outcome of the project. This helps assess the impact of changes in different factors on project viability and profitability. This approach helps in identifying the key drivers of the project and quantifying the potential impact of uncertainties. Therefore, option B is the best choice for evaluating projects through sensitivity analysis.

Sensitivity Analysis Evaluates Projects By