Sensitivity Analysis Is a Statistics-Based Approach Used in Capital Budgeting

question 12

True/False

Sensitivity analysis is a statistics-based approach used in capital budgeting to asses risk by applying predetermined probability distributions and random numbers to estimate risky outcomes.

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Definitions:

Sequential Method

A process or analytical approach where steps are followed in a specific, sequential order to achieve a desired result or solution.

Direct Method

A way of preparing a cash flow statement where actual cash receipts and payments are reported, rather than adjusting net income for accruals.

Reciprocal Method

An accounting technique used in managerial accounting to allocate costs between support departments, taking into account the mutual services they provide to each other.

Sequential Method

An approach to cost allocation in which support department costs are allocated to other support and operating departments sequentially, one after another, based on a predetermined order.