Which of the Following Statements Is CORRECT

question 41

Multiple Choice

Which of the following statements is CORRECT?

• A) Sensitivity analysis as it is generally employed is incomplete in that it fails to consider the probability of occurrence of the key input variables.
• B) In comparing two projects using sensitivity analysis,the one with the steeper lines would be considered less risky,because a small error in estimating a variable such as unit sales would produce only a small error in the project's NPV.
• C) The primary advantage of simulation analysis over scenario analysis is that scenario analysis requires a relatively powerful computer,coupled with an efficient financial planning software package,whereas simulation analysis can be done efficiently using a PC with a spreadsheet program or even with just a calculator.
• D) Sensitivity analysis is a type of risk analysis that considers both the sensitivity of NPV to changes in key input variables and the probability of occurrence of these variables' values.
• E) As computer technology advances,simulation analysis becomes increasingly obsolete and thus less likely to be used than sensitivity analysis.

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Definitions:

Average Age

The mean value of the ages of individuals in a particular group, calculated by summing their ages and dividing by the number of individuals.

Sampling Frame

The list or database from which a sample is drawn for a study, containing all the elements that define the population.

Quality Control

The practice of maintaining standards in manufactured products by testing a sample of the output against the specification.

Systematic Sampling

A method of sampling where members of a population are selected at regular intervals to form a sample.