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Which TWO of the following statements about sensitivity analysis are correct?
• Sensitivity analysis can be used to gain insight into which assumptions or variables in
a situation are critical
• Sensitivity analysis provides information on the basis of which decisions can be made
but it does not point to the correct decision directly
• As well as identifying how far a variable needs to change, sensitivity analysis looks at
the probability of such a change
• Sensitivity analysis not only assumes that variables can change independently, it also
allows to change more than one variable at a timeAnswers
A
Expected values calculations are typically used by risk-neutral investors, and as Lexi is risk
neutral he should chose the bus station as this will bring a higher profit, based on
expected value calculations.
Statements B and C are not true as Expected values are not to be used by risk-averse or
risk-seeking investors.
Statement D is incorrect as although Expected Values are not relevant when appraising
one-off projects, Lexi is planning to repeat his cake selling enterprise every weekday and
the values of $240 and $270 can be considered as averagesHi i think the second and last statement is true please help me with this
It seems as though you have looked at the wrong answer in your book, because the answer you have typed out has absolutely nothing whatsoever to do with the question!!
It is the first and second statements that are correct.
Sensitivity analysis measures by what %’age a factor needs to change before the decision changes.
The smaller the % then the more critical the factor is.
Also, the sensitivity is useful information when making the decision.no i have seen the answer for the same question that what i was having a doubt cause the answer is completely different
this is an error in the book because the answer actually does have nothing to do with the question
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