Sensitivity analysis:

Multiple Choice

• looks at the most reasonably optimistic and pessimistic results for a project.

• is used for projects that cannot be analyzed by scenario analysis because the cash flows are unconventional.

• is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable.

• illustrates how an increase in operating cash flow caused by changing both the revenue and the costs simultaneously will change the net present value for a project.

• helps identify the variable within a project that presents the greatest forecasting risk.