Sensitivity Analysis Is Based On

question 14

Multiple Choice

Sensitivity analysis is based on:

• A)varying a single variable and measuring the resulting change in the NPV of a project.
• B)applying differing discount rates to a project's cash flows and measuring the effect on the NPV.
• C)expanding and contracting the number of years for a project to determine the optimal project length.
• D)the best, worst, and most expected situations.
• E)various states of the economy and the probability of each state occurring.

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Definitions:

Present Discounted Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Expected Profits

Projected earnings calculated by estimating revenues and subtracting anticipated costs and expenses.

Interest Rates

The cost of borrowing money or the return on savings, typically expressed as a percentage.

Lottery

A lottery is a form of gambling that involves drawing numbers at random for a prize, often administered by state or federal governments.