Answer (A) is correct . Sensitivity analysis is a technique to evaluate a model in terms of the effect of changing the values of the parameters. It answers “what if” questions. In capital budgeting models, sensitivity analysis is the examination of alternative outcomes under different assumptions.
Answer (B) is incorrect because Probability (risk) analysis is used to examine the array of possible outcomes given alternative parameters.
Answer (C) is incorrect because Cost behavior (variance) analysis concerns historical costs, not predictions of future cash inflows and outflows.
Answer (D) is incorrect because ROI analysis is appropriate for determining the profitability of a company, segment, etc.
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