Sensitivity analysis evaluates projects by:
A) forecasting changes in interest rates that would increase financing costs.
B) recording profitability changes while changing one variable at a time.
C) ensuring that the project sponsor has proper incentives.
D) testing for interrelated variables.

Question

Quizplus · Accepted Answer

Sensitivity analysis involves testing how changes in one variable impact the overall profitability of a project while keeping all other variables constant. This helps identify the most critical factors that can impact the success of the project, and allows for adjustments to be made accordingly. Options A, C and D do not directly relate to the purpose of sensitivity analysis.

Sensitivity Analysis Evaluates Projects By