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:

Sales Returns

Goods returned by customers after purchase, reducing the total sales revenue.

Cash Payments Journal

An accounting ledger that tracks all cash payments made by a business, including expenses, debt payments, and purchases.

Control Account

A general ledger account that summarizes and controls the detailed data recorded in subordinate ledger accounts.

Subsidiary Ledger

A detailed ledger containing all account details and transactions for individual component accounts that roll up into a general ledger summary account.