Sara Lee Has Noted That Every Time the Sales Quantity

question 285

Multiple Choice

Sara Lee has noted that every time the sales quantity increases by 5 percent for a particular project, the operating cash flow for the project increases by 8 percent. What is the degree of operating
Leverage for this project if the contribution margin is $2.50?

• A) .40
• B) .63
• C) .71
• D) 1.40
• E) 1.60

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Definitions:

Tracking Stock

A type of stock issued by a parent company that tracks the financial performance of a particular division or subsidiary without conferring ownership.

Dual-Class Shares

Dual-class shares are a type of stock structure where different classes of shares provide different rights, typically voting power, to shareholders.

Stock Valuation Model

A method or approach used to estimate the intrinsic value of a stock, helping investors decide whether to buy, sell, or hold the stock.

Required Rate of Return

The minimum return an investor expects to receive for investing in a particular asset, considering its risk level.