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“Dear tutor,
Can u explain for me which of following is correct
A. Sensitivity analysis takes into account the interrelationship vw project variables ( false because isolating each variable once at a time)
B. Probability analysis can be used to assrss the uncertainty associated with the project
(Please explain for me whether true or false)C. Uncertainty can be said to increase with project life, while risk increases with the variablilitt of returns
( i think this one is correct)D. A discount rate of 5% could be used to lessen the effect of later cashflows on the decision
( please explain for me about this)”The answer is indeed C (although why are you attempting questions for which you do not have answers? You should be using a Revision Kit from one of the ACCA approved publishers, and they do contain answers and explanations).
B is false because uncertainty is where we do not know the probabilities of the possible outcomes.
D is false because the higher the discount rate, the less affect on the NPV there will be from cash flows in the future. The more the uncertainty or risk, the higher the discount rate we should use.
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