In completing a sensitivity analysis for a capital budgeting project, which of the following would typically be varied?
I. Discount rate
II. Future cash flows
III. Future accrual-basis revenues and expenses
A) I and III only
B) II and III only
C) I and II only
D) I, II, and III

Question

Quizplus · Accepted Answer

In a sensitivity analysis for a capital budgeting project, the discount rate and future cash flows are typically varied to evaluate the impact of changing assumptions on the net present value (NPV) of the project. Variations in future accrual-basis revenues and expenses would be a part of a different type of analysis, such as a scenario analysis or a simulation analysis. Therefore, choices I and II are the appropriate options to include in a sensitivity analysis for a capital budgeting project.

In Completing a Sensitivity Analysis for a Capital Budgeting Project