The Greater the Degree of Sensitivity of Any One Variable

question 397

Multiple Choice

The greater the degree of sensitivity of any one variable, the:

• A) Less likely that variable is to cause potential losses if the estimated values are incorrect.
• B) Higher the net present value will be with an increase in any of the variables.
• C) Less slope the resulting net present value line will have when graphed against changes in that variable.
• D) More attention management should pay to the reliability of the estimates for that variable.
• E) Less important forecasting errors for that variable become.

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Definitions:

Dividend Irrelevance Theory

A theory suggesting that an investor's choice between investing in companies that pay dividends and those that do not does not affect the investor's overall return.

Reducing Near-Term Dividends

A financial strategy involving the reduction of dividend payouts to shareholders in the short-term, typically with the aim of reallocating funds for company growth or debt reduction.

Future Dividends

Predicted payments made by a corporation to its shareholders out of its earnings in the future.

Stock Split

An action by a company to divide its existing shares into multiple shares to boost the liquidity of the shares, although the firm's overall market capitalization remains unchanged.