Marzella Corp

question 63

Multiple Choice

Marzella Corp. is analyzing a project that involves expanding the firm into a new product line. The project includes the construction of a new manufacturing facility and the creation of a new
Distribution system. The project's financial projections will tend to have which one of the following
Characteristics if the person compiling those projections suffers from over-optimism?

• A) Overestimated construction costs.
• B) Overestimated expenses.
• C) Overestimated net present values.
• D) Underestimated profits.
• E) Underestimated sales estimates.

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Definitions:

Operating Income

The amount of profit realized from a business's operations after deducting operating expenses such as wages, depreciation, and cost of goods sold.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed costs in a company's cost structure.

Breakeven Point

is the level of production or sales at which total revenues equal total costs, resulting in neither profit nor loss.

Business Risk

Variation in a company’s financial performance caused by changes in business conditions.