Which of the Following Statements Is CORRECT

question 41

Multiple Choice

Which of the following statements is CORRECT?

• A) Sensitivity analysis as it is generally employed is incomplete in that it fails to consider the probability of occurrence of the key input variables.
• B) In comparing two projects using sensitivity analysis,the one with the steeper lines would be considered less risky,because a small error in estimating a variable such as unit sales would produce only a small error in the project's NPV.
• C) The primary advantage of simulation analysis over scenario analysis is that scenario analysis requires a relatively powerful computer,coupled with an efficient financial planning software package,whereas simulation analysis can be done efficiently using a PC with a spreadsheet program or even with just a calculator.
• D) Sensitivity analysis is a type of risk analysis that considers both the sensitivity of NPV to changes in key input variables and the probability of occurrence of these variables' values.
• E) As computer technology advances,simulation analysis becomes increasingly obsolete and thus less likely to be used than sensitivity analysis.

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Definitions:

Raw Materials Inventories

Stocks of unprocessed materials that are used in the manufacturing process to produce finished goods.

Controlling

In management, the process of monitoring performance and taking action to ensure desired outcomes.

Directing

In management, directing refers to the process of guiding, leading, and overseeing employees to achieve organizational goals.

Planning

The process of setting objectives and determining the actions necessary to achieve them.