CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) true?

I. Sensitivity analysis is used to determine the value of the firm or equity by changing the values of inputs and it shows how sensitive the value is to changes in each of the input parameters.
II. Sensitivity analysis is appropriate only for inputs that determine cost of funds. Since free cash flows are calculated in an objective way, no sensitivity analysis is required.
III. Since base year values are calculated on current or historical data, sensitivity analysis with respect to base year values is not useful.
A. I only
B. II and III
C. I and III
Explanation: Two major sources of error in valuation analysis are the future growth in FCFF and FCFE, and the base-year values for the FCFF or FCFE growth forecasts.

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