When performing sensitivity analysis: A statistical methods should not be employ

Question

When performing sensitivity analysis:

A statistical methods should not be employed B. electronic spreadsheets make the job more manageable C. assumptions should be changed one at a time D. all of the above E. B and C

A differential analysis: A. can be used to compare an alternative to the status quo B. can be used to compare any set of alternative C. is easier to comprehend if a consistent frame of reference is employed D. B and C E. A, B, C

When projected assets are less than projected liabilities and equity the firm will have:

A a need for debt B. need for equity C. excess cash D. none of the above

If the bonds coupon rate is less than the general interest rate in the market the bond will sell at:

A premium B. discount C. neither A or B

Explanation / Answer

1. Option E, B and C. Sensitivity analysis is performed for various assumptions and at a time only on assumption should be changed to make the NPV zero. As it involves complicated calculation it is obvious that electronic spreadsheet will make the work easier.

2. Option D, B and C. Differential analysis is an easier way to compare any set of alternative by providing the difference in the values of the alternatives.

3. Option D, none of the above. This situation means surplus of fund exists. Surplus should be adjusted by increasing the assets with the available funds.

4. Option B, Disount. Since the bond is providing less interest than market it will be traded at discount.

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