Sensitivity Analysis

question 75

Multiple Choice

Sensitivity analysis:

• A) makes most sense when variables are interrelated.
• B) gives an idea of the combined effect of pessimistic outcomes.
• C) allows the manager to weight the various outcomes to provide a better estimate of NPV.
• D) forces the manager to identify the underlying factors.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded or supplied of a good changes in response to a price change.

Midpoint Method

A technique used in economics to calculate the elasticity of demand or supply between two points on a curve by using the average of the initial and final quantities and prices.

Smoking Reduction

Efforts or strategies aimed at decreasing the prevalence of tobacco smoking among individuals or populations.

Corporate Strategy

The overall plan and direction of a company to achieve its long-term goals and sustain competitive advantage.