If sensitivity analysis indicates none of the individual variables will cause a negative NPV under pessimistic conditions, then the:
A)Project is assured to be successful
B)Project's discount rate should be reduced
C)Economic forecasts are possibly overly optimistic
D)Interaction of the variables should be considered

Question

Quizplus · Accepted Answer

Sensitivity analysis only examines individual variables in isolation. Even if no single variable causes a negative NPV, the combined effect of multiple variables changing simultaneously could still lead to a negative NPV. Therefore, interactions between variables should be considered.

If Sensitivity Analysis Indicates None of the Individual Variables Will