Sensitivity Analysis in the Calculation of the Adjusted Present Value

question 60

Multiple Choice

Sensitivity analysis in the calculation of the adjusted present value (APV) allows the financial manager to

• A)analyze all of the risks (business, economic, exchange rate uncertainty, political, etc.) inherent in the investment.
• B)more fully understand the implications of planned capital expenditures.
• C)consider in advance actions that can be taken should an investment not develop as anticipated.
• D)all of the above

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Definitions:

Small Business

An independently owned and operated company that is limited in size and in revenue depending on the industry.

Overly Optimistic

A tendency to expect the best possible outcome or overly positive scenarios without adequately considering potential risks and realistic challenges.

Business Plan

A detailed document outlining the strategy, goals, financials, and future projections of a business.

Understating Profits

The practice of reporting lower earnings than actually achieved, often for tax or strategic business reasons.