Sensitivity analysis is primarily designed to determine the:
A)range of possible outcomes given the expected ranges for every variable.
B)degree to which the net present value reacts to changes in a single variable.
C)net present value given the best and the worst possible expected situations.
D)degree to which a project relies on financial leverage.
E)best mix of fixed and variable costs for each project.

Question

Quizplus · Accepted Answer

Sensitivity analysis is primarily used to determine the degree to which the net present value reacts to changes in a single variable. It helps to identify which variables have the most significant impact on the project's overall financial performance. By evaluating the impact of changes in a single variable, sensitivity analysis helps to determine the level of risk associated with the project and the measures that need to be implemented to mitigate it. Hence, option B is the correct choice.

Sensitivity Analysis Is Primarily Designed to Determine The