Briefly explain the usefulness of a sensitivity graph.

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Briefly explain the usefulness of a sensitivity graph.

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Briefly explain the usefulness of a sensitivity graph.

Explanation & AnswerSolution by a verified expert

Explanation

A sensitivity graph shows how a change in the different input variables result in a change in the project's net present value (NPV). It answers the what-if questions of the project manager. The steeper a line graph is, the more sensitive the NPV is to the change in that variable. Thus, the sensitivity graph helps the project manager to determine which variables to majorly focus on to estimate the most accurate NPV of the project.

Verified Answer

Sensitivity graph tells how much effect an input variable has on the net present value (NPV) of a project. Thus, it helps the project manager to identify the variables which have the higher impact on the project's NPV.

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