Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please answer both parts to this question, it is very simple, I will be sure to give a thumbs up! Sensitivity analysis measures a project's
Please answer both parts to this question, it is very simple, I will be sure to give a thumbs up!
Sensitivity analysis measures a project's stand-alone risk by showing how much the project's NPV (or IRR) is affected by a small change in one of the input variables, say sales. Other things held constant, with the size of the independent variable graphed on the horizontal axis and the NPV on the vertical axis, the steeper the graph of the relationship line, the more risky the project, other things held constant. True False A firm is considering a new project whose risk is greater than the risk of the firm's average project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following? Increase the cost of capital used to evaluate the project to reflect its higher- than-average risk. Increase the estimated NPV of the project to reflect its greater risk. Increase the estimated IRR of the project to reflect its greater risk. Ignore the risk differential if the project would amount to only a small fraction of the firm's total assets. Reject the project, since its acceptance would increase the firm's riskStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started