Practice Problem – Sensitivity Analysis

Practice Question

Cases in Finance
Risk Analysis Measures
Sensitivity Analysis
Short Answer

What is the main purpose of sensitivity analysis in financial forecasting?

Answer +
B
Explanation +

Sensitivity analysis is primarily used to evaluate how changes in key assumptions or inputs—such as revenue growth, discount rates, or costs—affect the outcome of financial models. It helps analysts assess the risk of a project by identifying which assumptions have the most significant impact on results, enabling better decision-making under uncertainty.