Sensitivity Analysis Evaluates Projects By

question 34

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 proper incentives.
• D) testing for interrelated variables.

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Definitions:

WACC

Short for Weighted Average Cost of Capital, it measures a firm's cost of capital, considering the weighted costs of equity and debt financing.

NPV

Net Present Value; a calculation used to determine the value of an investment by assessing the present value of its cash flows minus the initial investment.

Cash Flow

The combined total of money coming in and going out of an enterprise, significantly affecting its financial fluidity.

Mutually Exclusive

This term describes scenarios or choices where the selection of one option precludes the selection of any other option, typically in decision making or project selection.