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A sensitivity analysis on the discount rate is worth doing chiefly because

  • A.the cash flows are known exactly
  • B.the method requires it by convention
  • C.it changes the alternatives' lives
  • D.the rate is the least certain of the inputs

Answer: D

First costs and operating costs can often be estimated closely, whereas the appropriate rate is a matter of judgement. Showing that the ranking holds over a plausible range of rates is what makes a recommendation robust.

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