Sensitivity Analysis Evaluates Projects By

question 73

Multiple Choice

Sensitivity analysis evaluates projects by:

• A) forecasting changes in interest rates that would increase financing costs.
• B) recording profitability changes while changing one variable at a time.
• C) ensuring that the project sponsor has the proper incentives.
• D) testing for interrelated variables.

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Definitions:

Amortized Cost

The amount at which a financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method.

Trading Securities

Financial instruments that are purchased and held primarily for selling them in the near term to generate income on short-term price differences.

Marketable Securities

Financial instruments that can be easily converted into cash, typically with high liquidity and short-term maturities.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee’s profits or losses.