Which of the Following Statements Is CORRECT

question 55

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.

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Definitions:

Anxiety and Uncertainty

The feelings of worry, nervousness, or unease, often about something with an uncertain outcome.

Concrete Advice

Specific and practical recommendations or guidance.

Motivation

The driving force behind an individual's actions, desires, and needs.

Ambivalent Feelings

Mixed feelings or emotions towards a person, object, or idea, characterized by uncertainty or an inability to make a clear decision or stance.