Question

Mark is analyzing a proposed project to determine how changes in the variable costs per unit would affect the project's net present value. What type of analysis is Mark conducting?

Sensitivity analysis
Erosion planning
Scenario analysis
Benefit-cost analysis
Opportunity cost analysis

Answer 1

Mark is performing a sensitivity analysis, which is a financial decision-making tool used to assess the impact of variable cost changes on a project's NPV.

Step-by-step explanation:

Mark is conducting a sensitivity analysis to determine how changes in the variable costs per unit would affect the project's net present value (NPV). Sensitivity analysis is a decision-making tool used in finance to model the impact of different variables on a particular outcome, in this case, the NPV of a project.

By changing the variable costs per unit within the analysis, Mark can understand how sensitive the NPV is to this particular change. This helps in decision-making by allowing a better grasp of potential risks associated with cost fluctuations.