If a firm were interested in knowing the effect of a single input change on the net present value of a project, then the firm would most likely want to perform:
A) a Monte Carlo simulation.
B) a scenario analysis.
C) a sensitivity analysis.
D) a break-even analysis.

Question

Quizplus · Accepted Answer

Sensitivity analysis can help a firm assess how changes in a particular input variable affect the net present value of a project. It involves varying one input while keeping all others constant, and observing how the output (NPV) changes. This allows decision-makers to focus on the most important variables and assess the potential impact of changes on the project's financial viability. Monte Carlo simulation and scenario analysis are more appropriate when a firm wants to assess the impact of multiple input variables on project outcomes. Break-even analysis is useful when a firm wants to determine the revenue level at which it will start making a profit on a project.

If a Firm Were Interested in Knowing the Effect of a Single