Explanation

Sensitivity analysis is a measure of risk wherein the change in the one input variable is done in order to determine the impact of such change on the net present value (NPV). In this analysis, the other inputs are kept constant. This analysis helps in making a judgement of the most critical input to sustain the NPV of the project, or to do an analysis of normal, best and worst scenarios.

Verified Answer

Sensitivity analysis is a technique to measure the stand-alone risk of a project wherein one input variable is changed to forecast  its impact on the net present value keeping the other input variables constant at their expected values.