The Use of Sensitivity Analysis Requires That

question 56

Multiple Choice

The use of sensitivity analysis requires that

• A)a model of a project's cash flows be developed
• B)probability distributions of the determinants of a project's cash flows be estimated
• C)the firms have access to a very large computer
• D)the firm is greatly interested in the portfolio risk reduction characteristics of a project

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Definitions:

Prices and Wages

Refers to the levels of remuneration for labor and the cost of goods and services in an economy, which can impact inflation and purchasing power.

Natural Rate

The rate of a quantity, such as unemployment or interest, that prevails when the economy is in a long-term equilibrium.

Classical Dichotomy

The theoretical separation of nominal and real variables in classical economics, suggesting that changes in the money supply only affect nominal variables.

Inflation Rate

An upward movement in the overall price level of goods and services in an economy over time.