Corporate Finance Quiz
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CAPITAL BUDGETING
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A significant limitation of using traditional sensitivity analysis in capital project evaluation is that it:
A
requires assumptions about the probability distribution of each input variable, which are difficult to estimate.
B
understates the project's risk by failing to consider the impact of diversification within the firm's portfolio of projects.
C
overlooks the managerial flexibility to alter the project's operations in response to changing circumstances.
D
assumes that changes in input variables are independent and fails to account for potential correlations between them.
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