A financial manager reviewing a project is concerned about the level of forecasting risk in the project's estimated cash flows. The manager should use ___________ to identify the variable that presents the highest degree of forecasting risk.
A) Scenario analysis.
B) Simulation analysis.
C) Sensitivity analysis.
D) Break-even analysis.
E) Strategic options analysis.

Question

Quizplus · Accepted Answer

Sensitivity analysis is used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions. This method is particularly useful for assessing the forecasting risk by identifying which variables have the most significant impact on the project's outcomes, thereby highlighting the areas of greatest uncertainty or risk.

A Financial Manager Reviewing a Project Is Concerned About the Level