Which of the Following Correctly Describes Sensitivity Analysis

question 38

Multiple Choice

Which of the following correctly describes sensitivity analysis?

• A) recalculation of project NPV by changing several inputs to new but consistent values.
• B) measures the degree to which fixed costs magnify the effect on profits of a shortfall in sales.
• C) analysis of how project NPV changes if different assumptions are made about key variables.
• D) measures the future level of sales at which NPV equals zero.

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Definitions:

FIFO Income

Refers to income calculated using the First-In, First-Out inventory valuation method, wherein the oldest inventory items are considered sold first, influencing the cost of goods sold and ultimately the income.

Sustainable

Refers to development or practices that meet the needs of the present without compromising the ability of future generations to meet their own needs.

IFRS

Rephrased: The International Financial Reporting Standards, a global framework for financial reporting, utilized by companies for the preparation of financial statements.

Net Realizable Value

The estimated selling price of goods, minus the cost of their sale or disposal, representing what a company can expect to receive.