The purpose of sensitivity analysis is to show:
A)The optimal level of the capital budget
B)How price changes affect break-even volume
C)Seasonal variation in product demand
D)How variables in a project affect profitability

Question

Quizplus · Accepted Answer

Sensitivity analysis is a tool used to determine how changes in input parameters affect the output of a project or decision. Therefore, the purpose of sensitivity analysis is to identify how different variables in a project affect profitability. Option A is incorrect as sensitivity analysis does not specifically aim to determine the optimal level of the capital budget, but rather to identify how changes in input values affect the output. Option B is incorrect as sensitivity analysis does not directly relate to break-even analysis. Option C is incorrect as sensitivity analysis is not specifically used to identify seasonal variation in product demand.

The Purpose of Sensitivity Analysis Is to Show