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:

Return on Investments

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Competitors

Other businesses or products that offer similar solutions or target the same customers within a market.

Industry Averages

Statistical measures that represent the typical performance or behavior of companies within a particular industry, often used for benchmarking purposes.

Promotion-to-Sales Ratio

A metric used to measure the effectiveness of a promotional campaign by comparing the cost of the promotion to the generated sales.