A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the key aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?

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13 October, 22:05

A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the key aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?

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Izabella Robbins · Answer 1

Sensitivity analysis

Explanation:

A sensitivity analysis is a quantitative risk assessment that identifies how a key variable affect's a project's profitability. It is also used to determine how the net present value of a project changes when a key variable changes.

By carrying on a sensitivity analysis, the manager should be able to determine which task variable has the greatest impact on the project's NPV.