Sensitivity analysis is a technique in which:
A)all key input variables are changed to their most likely values to compute a project's net present value (NPV).
B)all of the input variables are set at their most reasonably expected values to computes a project's internal rate of return (IRR).
C)the values of key input variables are changed to observe the resulting changes in a project's net present value (NPV) and its internal rate of return (IRR).
D)a "bad" set and "good" set of financial circumstances are compared with a most likely, or base case, situation.
E)key input variables are set at their worst reasonably forecasted values to compute a project's net present value (NPV).

Question

Quizplus · Accepted Answer

Sensitivity analysis involves changing the values of key input variables to observe the resulting changes in a project's net present value (NPV) and internal rate of return (IRR). Unlike option A or E, sensitivity analysis does not necessarily involve changing variables to "most likely" or "worst case" scenarios. Option B only refers to computing IRR, which is not the sole purpose of sensitivity analysis. Option D refers to a comparison of financial circumstances, which is not necessarily a component of sensitivity analysis.

Sensitivity Analysis Is a Technique in Which