Sensitivity Analysis of a Project Is Conducted By

question 16

Multiple Choice

Sensitivity analysis of a project is conducted by:

• A)changing the value of a single variable and computing the resulting change in the net present value.
• B)changing the value of two project variables to determine their interdependency.
• C)holding all variables to their base level and changing the project's required rate of return.
• D)assigning either the best or the worst possible value to each variable and comparing the results to those of the base case.
• E)comparing actual values to projected values to determine which variable had the greatest variation.

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Definitions:

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, typically because consumers will choose higher quality substitutes when they can afford them.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period, typically showing a downward slope from left to right.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the good's sensitivity to price changes.