The Relationship between Input Variables and NPV

A

The Net Present Value (NPV) sensitivity graph shows the impact of changes in one or more input variables on the NPV of a project or investment. The steepness of the sensitivity line for a particular input variable indicates the degree of impact that a change in that variable will have on the NPV.

A steep sensitivity line means that a small change in the input variable will result in a large change in NPV. Conversely, a shallow sensitivity line means that a large change in the input variable will result in a small change in NPV.

Therefore, the answer to this question is option C: Large percentage change; large change. A steep sensitivity line indicates that a small percentage change in the input variable results in a large change in NPV, which implies a large percentage change in the input variable would lead to an even larger change in the NPV.

It's worth noting that sensitivity analysis is a valuable tool for assessing the risk of a project or investment. By examining the impact of changes in input variables on the NPV, it can help decision-makers understand the potential impact of uncertainties or risks and make informed decisions based on that analysis.