ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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What is the purpose of sensitivity analysis?

To measure the effectiveness of financial forecasting
To investigate changes in NPV with variable adjustments
To determine the certainty of future cash flows
To estimate future outcome probabilities

The correct answer is: To investigate changes in NPV with variable adjustments

Sensitivity analysis is a key financial modeling technique used primarily to understand how different values of an independent variable impact a particular dependent variable under a given set of assumptions. Specifically, it investigates changes in net present value (NPV) as a result of variable adjustments within a financial model. By varying one input at a time—such as sales volume, cost of goods sold, or discount rates—analysts can observe how these changes affect the overall outcome, typically focusing on NPV. This process helps in identifying which factors have the most influence on the project's viability, allowing decision-makers to prioritize risks and uncertainties that could significantly affect the financial projections. Essentially, sensitivity analysis provides insights into potential variability in financial outcomes, helping stakeholders make informed decisions based on different scenarios. The purpose is not about measuring the general effectiveness of forecasting or determining the certainty of future cash flows; rather, it specifically highlights how various inputs can influence NPV, thus reinforcing that option as the most precise description of sensitivity analysis.