Which of the Following Statements Is Most Correct

question 148

Multiple Choice

Which of the following statements is most correct?

• A) Sensitivity analysis is incomplete because it fails to consider the range of likely values of key variables as reflected in their probability distributions.
• 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 is that it provides a very accurate point estimate of a project's NPV.
• D) One important benefit of simulation analysis as compared to scenario analysis,is that once the analysis is complete,it provides a clear accept/reject decision rule.
• E) Answers c and d are both correct.

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Definitions:

Mixed Cost

A cost that contains both variable and fixed cost elements, making it partially dependent on the level of output or activity.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent or salaries.

Variable Cost

Expenses that change in proportion to the production level or the amount of output.

Period Cost

Period cost refers to any cost that is not directly tied to the production of goods and is expensed in the accounting period in which it is incurred, such as selling, general, and administrative expenses.