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Measurement of project risk is essential for capital investment and financing decisions because it enables decision-makers to evaluate the uncertainty in expected returns and make informed choices. Various techniques are used to assess project risk, each focusing on identifying the variability of expected cash flows and the potential impact on the project's viability. One common technique is sensitivity analysis, which measures how sensitive the project’s net present value (NPV) or internal rate of return (IRR) is to changes in one key variable at a time, such as sales volume, price, cost of raw materials, or discount rate. It helps in identifying the most critical variables that significantly affect the project's outcome. The drawback is that ___ __________ ____ ____ __________ ___ ________ ________ ________ ____ _________ ____.
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