If sensitivity analysis indicates none of the individual variables will cause a negative NPV under pessimistic conditions, then the:
A)project is assured 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 the impact of changing one variable at a time, but it does not account for the combined effect of multiple variables changing simultaneously. The interaction of variables could still lead to a negative NPV, even if individual changes do not.

If Sensitivity Analysis Indicates None of the Individual Variables Will