Sensitivity Analysis Measures a Project's Stand-Alone Risk by Showing How

question 37

True/False

Sensitivity analysis measures a project's stand-alone risk by showing how much the project's NPV (or IRR) is affected by a small change in one of the input variables, say sales.Other things held constant, with the size of the independent variable graphed on the horizontal axis and the NPV on the vertical axis, the steeper the graph of the relationship line, the more risky the project, other things held constant.

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Definitions:

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, typically including income statement, balance sheet, and statement of cash flows.

Stock Market

A marketplace where stocks (shares of ownership in businesses) are bought and sold.

Return on Sales

A financial metric used to evaluate a company's operational efficiency by dividing net income by revenue.

Financial Statements

Documents that provide an overview of a company's financial condition, including the balance sheet, income statement, and cash flow statement.