An Exploration of the Effect of Changing Multiple Project Parameters

question 23

Multiple Choice

An exploration of the effect of changing multiple project parameters on net present value (NPV) is called:

• A)scenario analysis.
• B)internal rate of return (IRR)analysis.
• C)accounting break-even analysis.
• D)sensitivity analysis.
• E)EBIT break-even analysis

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Definitions:

Internal Rate of Return Method

A financial metric used to evaluate the profitability of potential investments, calculating the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Average Annual Income

The average amount of money earned per year over a specified period, often used to assess financial stability.

Accounting Rate of Return

A financial metric used to assess the profitability of an investment, calculated by dividing the average annual accounting profit by the initial investment cost.

Cash Payback Method

An investment appraisal technique that calculates the time needed to recoup the cost of an investment through cash flows.