A sensitivity graph shows % deviation of the variable from expectation on the x- axis and NPV on the y- axis. Variables may be represented by straight lines on the graph. Which variable will have the largest negative effect on NPV?
A) Large upward gradient
B) Small downward gradient
C) Large downward gradient
D) Small upward gradient

Question

Quizplus · Accepted Answer

A large downward gradient indicates that the variable has a significant negative effect on NPV as its deviation from expectation increases. Therefore, of the four options, a large downward gradient represents the variable with the largest negative effect on NPV.

A Sensitivity Graph Shows % Deviation of the Variable from Expectation