If sensitivity analysis indicates none of the individual variables will cause a negative NPV under pessimistic conditions, then the:
A) project is ensured 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 examines how changes in individual variables affect the outcome, but it does not account for the combined effect of multiple variables changing simultaneously. Therefore, even if individual variables do not lead to a negative NPV under pessimistic conditions, their interaction might still pose a risk to the project's viability.

If Sensitivity Analysis Indicates None of the Individual Variables Will