What Types of Risk Do Managers Identify When They Implement

question 65

Essay

What types of risk do managers identify when they implement sensitivity analysis?

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Definitions:

Operating Capacity

The maximum output that a company can produce under normal circumstances over a specific period.

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future business decisions.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision, representing the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Incremental Revenues

Additional revenue generated from a specific action or decision, comparing the difference in total revenue with and without the action.