Economics Capital Budgeting Questions
The role of sensitivity analysis in evaluating capital budgeting projects is to assess the impact of changes in key variables or assumptions on the project's financial viability. It helps in identifying the level of uncertainty and risk associated with the project by analyzing how sensitive the project's profitability is to variations in factors such as sales volume, costs, interest rates, and market conditions. Sensitivity analysis allows decision-makers to understand the potential outcomes and make informed decisions based on different scenarios, improving the accuracy and reliability of the capital budgeting evaluation process.