Answer (B) is correct . After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis, which is a trial-and-error method used to determine the sensitivity of the estimates used. For example, forecasts of many calculated NPVs under various assumptions may be compared to determine how sensitive the NPV is to changing conditions. Changing the assumptions about a certain variable or group of variables may drastically alter the NPV, suggesting that the risk of the investment may be excessive.
Answer (A) is incorrect because Sensitivity analysis is a means of making several estimates of inputs into a capital budgeting decision to determine the effect of changes in assumptions.
Answer (C) is incorrect because Sensitivity analysis is not a simulation technique; it is simply a process of making more than one estimate of unknown variables.
Answer (D) is incorrect because Sensitivity analysis would not identify the required market share; instead, it would be used to make several estimates of market share to determine how sensitive the decision is to changes in market share.
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