A Company with a Degree of Operating Leverage of 4

question 37

True/False

A company with a degree of operating leverage of 4 would expect net income to increase by 200% if sales increased from $100,000 to $150,000.

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Definitions:

Net Present Value

An analysis that assesses the worth of a project or investment by comparing all incoming and outgoing cash flows against a discount rate.

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments.

Payback Method

A capital budgeting method that calculates the time needed to recoup the initial investment from the cash inflows.

Time Value Of Money

The idea that money in hand now is more valuable than the same amount in the future because of its ability to generate earnings.