A Company with a High Level of Operating Leverage Will

question 4

Multiple Choice

A company with a high level of operating leverage will:

• A) experience fewer fluctuations in income as sales fluctuate than a company with a low level of operating leverage.
• B) experience wider fluctuations in income as sales fluctuate than a company with a low level of operating leverage.
• C) earn higher profits than a company with a low level of operating leverage.
• D) earn lower profits than a company with a low level of operating leverage.

---

Definitions:

Profitability Index

A financial metric that measures the relative profitability of an investment by dividing the present value of future cash flows by the initial investment cost.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Net Cash Flows

The difference between a company's cash inflows and outflows over a specific period.

Accounting Rate

Typically refers to the rate of return or interest rate used in financial calculations, such as net present value or internal rate of return.