Quiz Ch 10 – Impact of Variable Costs Ratio on Fixed Cost Coverage
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
How does an increased ratio of variable costs to sales affect business operations?
How does an increased ratio of variable costs to sales affect business operations?
What does it signify when a project has zero Economic Value Added (EVA)?
When a firm with high operating leverage experiences a very high level of sales, what is the expected outcome?
What is the likely outcome for the project when the level of sales falls below the calculated NPV break-even level?
What does sensitivity analysis indicate if a 20% decrease in forecasted project sales still results in a positive NPV?
Which type of company is more likely to exhibit high operating leverage?
What does this suggest about the project if project sales go beyond the accounting break-even point, yet the project exhibits a negative EVA?
Within a sensitivity analysis for a fast-food establishment, which variable is expected to have the smallest effect on the outcomes?
How can firms effectively mitigate this inclination given the tendency for managers to be excessively optimistic when presenting project proposals?
Under what circumstances is the option for a firm to expand future production most valuable?