If an Equipment Replacement Decision Would Not Affect Revenue, Its

question 74

Multiple Choice

If an equipment replacement decision would not affect revenue, its benefits could still be measured by analyzing its

• A) cost savings.
• B) net cash flows.
• C) effect on net income.
• D) net cash outflows.

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Definitions:

Variable Cost

A cost that varies with the level of output or activity, such as materials and labor costs.

Operating Leverage

A financial ratio that measures the degree to which a firm or project can increase operating income by increasing revenue.

Operating Income

The income earned from a company's day-to-day operations, calculated before taking into account interest and taxes.

Margin Of Safety

The difference between actual sales and break-even sales, providing a cushion against which sales can fall before a business incurs a loss.