Sensitivity Analysis in the Calculation of the Adjusted Present Value

question 20

Multiple Choice

Sensitivity analysis in the calculation of the adjusted present value (APV) allows the financial manager to:

• A) analyze all of the risks (business, economic, exchange rate uncertainty, political, etc.) inherent in the investment.
• B) more fully understand the implications of planned capital expenditures.
• C) consider in advance actions that can be taken should an investment not develop as anticipated.
• D) All of these.

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Definitions:

Average Inventory

The average value of a company's inventory over a specific period, calculated by adding the beginning and ending inventory and dividing by two.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated before the next period's beginning.

Perpetual LIFO

A method of inventory valuation that continuously updates the inventory balance using the Last In, First Out (LIFO) principle.

Ending Inventory

The total value of all unsold goods that a company has in its possession at the end of a financial period.