An Analysis That Breaks the Net Present Value (NPV) Calculation

question 8

Multiple Choice

An analysis that breaks the net present value (NPV) calculation into its component assumptions and shows how the net present value (NPV) varies as one of the underlying assumptions changes is called ________.

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

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Definitions:

Commission Charges

Fees paid to an agent or company for facilitating a transaction, often a percentage of the transaction value.

Proceeds

The amount that a seller receives from the buyer of a note being discounted; the difference between the maturity value and the discount amount. In a stock transaction, the proceeds received by the seller are equal to the selling price minus the commission.

Differential Rate

A variable rate that applies to a specific portion of a loan or deposit balance, often used to encourage higher balances with better rates.

Commission Charges

Fees levied by a brokerage for conducting transactions on behalf of a client, often determined as a percentage of the transaction value.