Which of the Following Statements Is Correct

question 61

Multiple Choice

Which of the following statements is correct?

• A) Sensitivity analysis is incomplete because it fails to consider the range of likely values of key variables as reflected in their probability distributions.
• 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 using a PC with a spreadsheet program or even a calculator.
• D) Sensitivity analysis is a risk analysis technique that considers both the sensitivity of NPV to changes in key variables and the likely range of variable values.
• E) Answers c and d are correct.

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