If a 20% Reduction in a Project's Forecast Sales Would

question 93

Multiple Choice

If a 20% reduction in a project's forecast sales would still result in a positive NPV,then sensitivity analysis would suggest:

• A) that there is little point in further market research.
• B) that a more detailed sales forecast is required.
• C) that the initial sales forecasts were inflated.
• D) that more of the company's overhead costs can be allocated to this product.

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Definitions:

Break-Even Point

The point at which total costs and total revenue are equal, resulting in no profit or loss.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product and included in the product's cost calculation.

Break-Even Point

The level of production or sales volume at which total revenues equal total costs, resulting in zero profit or loss.

Contribution Margin Ratio

The ratio of contribution margin to sales revenue, indicating the percentage of each sales dollar available to cover fixed costs and generate profit.