A firm's managers realize they cannot monitor all aspects of their projects. However, in an attempt to maximize their firm's value, the managers do want to maintain a constant focus on the most critical aspect of each project. Given this specific desire, which type of analysis should they require for each project and why?   Multiple Choice   Sensitivity analysis; to identify the key variable(s) that affect(s) a project’s profitability   Cash breakeven; to ensure the firm recoups its initial investment   Scenario analysis; to guarantee each project will be profitable   Accounting breakeven; to ensure each project earns its required rate of return   Financial breakeven; to ensure each project has a positive NPV

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Question

 

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

 

Multiple Choice
  •  

    Sensitivity analysis; to identify the key variable(s) that affect(s) a project’s profitability

  •  

    Cash breakeven; to ensure the firm recoups its initial investment

  •  

    Scenario analysis; to guarantee each project will be profitable

  •  

    Accounting breakeven; to ensure each project earns its required rate of return

  •  

    Financial breakeven; to ensure each project has a positive NPV

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