One of the problems inherent in sensitivity analysis is that:
A)NPVs do not change once a project is introduced
B)Most projects are equally sensitive to all variables
C)It can be difficult to define the range of outcomes
D)The cost of conducting the analysis is excessive

Question

Quizplus · Accepted Answer

One of the difficulties in conducting sensitivity analysis is defining the range of outcomes. It can be challenging to determine the upper and lower limits of each variable that will affect the project's outcome, thus making it difficult to conduct a meaningful analysis. Choices A and D are incorrect, as NPVs can indeed change based on changes in key variables, and the cost of conducting sensitivity analysis may vary but is not necessarily excessive. Choice B is also incorrect, as projects can be more sensitive to certain variables than others.

One of the Problems Inherent in Sensitivity Analysis Is That