Which of the Following Statements Is CORRECT

question 76

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) 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.
• C) 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.
• D) As computer technology advances, simulation analysis becomes increasingly obsolete and thus less likely to be used as compared to sensitivity analysis.
• E) Sensitivity analysis as it is generally employed is incomplete in that it fails to consider the probability of occurrence of the key input variables.

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Definitions:

Continuity

The continuous and steady presence or functioning of something throughout a duration of time.

Perceptual Constancy

Perceiving objects as unchanging (having consistent color, brightness, shape, and size) even as illumination and retinal images change.

Figure-Ground

The organization of the visual field into objects (the figures) that stand out from their surroundings (the ground).

Linear Perspective

A technique in art to create an illusion of depth on a flat surface by converging parallel lines towards a single point on the horizon.