ACCA FM · Chapter 9 · Question 5 of 8
Which of the following is a limitation of sensitivity analysis?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) It considers the effect of changing only one variable at a time and does not indicate how likely that change is
Explanation
Sensitivity analysis identifies the critical variables by calculating how much each could change before the NPV becomes zero. However, it assumes the other variables remain at their expected values, while in practice variables may change together, and it does not use probabilities, so it says nothing about the likelihood of the change.
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