Which of the following appears to be a more likely result from using sensitivity analysis?
A)Agreement on the appropriate discount rate
B)Determine whether to finance with debt or equity
C)Isolation of pivotal factor in project profitability
D)Select the best capital budgeting project

Question

Quizplus · Accepted Answer

Sensitivity analysis is primarily used to identify how changes in certain factors, such as changes in sales or variable costs, will impact a project's profitability. Therefore, isolation of pivotal factor in project profitability is the most likely result of using sensitivity analysis. While sensitivity analysis may assist with selecting the best capital budgeting project or determining whether to finance with debt or equity, these decisions may involve other factors beyond the scope of sensitivity analysis. Similarly, agreement on the appropriate discount rate is typically determined through other methods such as cost of capital analysis, rather than sensitivity analysis.

Which of the Following Appears to Be a More Likely