A Widely Used Approach That Managers Use to Recognize Uncertainty

question 43

Multiple Choice

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is:

• A) Expected value analysis.
• B) Learning curve analysis.
• C) Capital budgeting analysis.
• D) Sensitivity analysis.
• E) Exponential distribution analysis.

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Definitions:

Financial Risk

The chance of incurring financial losses from an investment or business activity.

Operating Leverage

A measure that shows how revenue growth translates into growth in operating income, highlighting the impact of fixed costs.

Financial Performance

An assessment of how well a company can use assets from its primary mode of business and generate revenues.

ROE

Return on Equity; a financial ratio indicating the profitability of a company in relation to its equity capital.