Your company's scientists have developed an exciting new product that is unlike anything presently available to consumers. The NPV of bringing the product to market is positive yet you are uncertain about the sales projections. The best way for you to test the validity of the sales projections is to use:
A) Sensitivity and payback analysis.
B) Payback and break-even analysis.
C) Break-even and sensitivity analysis.
D) Operating leverage analysis.
E) IRR analysis.

Question

Quizplus · Accepted Answer

Break-even and sensitivity analysis are the best methods to test the validity of sales projections. Break-even analysis helps determine the point at which the product becomes profitable, which is crucial for understanding the sales needed to cover costs. Sensitivity analysis examines how changes in sales projections affect the project's profitability, providing insight into the potential risks and uncertainties associated with the sales forecasts.

Your Company's Scientists Have Developed an Exciting New Product That