You Are the Manager of a Project That Has a 2.8

question 72

Multiple Choice

You are the manager of a project that has a 2.8 degree of operating leverage and a required return of 14 percent.Due to the current state of the economy,you expect sales to decrease by 7 percent next year.What change should you expect in the operating cash flows next year given your sales prediction?

• A)19.60 percent decrease
• B)16.03 percent decrease
• C)13.46 percent decrease
• D)5.60 percent decrease
• E)2.74 percent decrease

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Definitions:

Marginal Utility

The additional satisfaction or benefit a consumer gains from consuming one more unit of a good or service.

Disability Insurance

Insurance coverage that provides income support to individuals who are unable to work due to disability.

Expected Utility

A theory in economics that quantifies how choices are made under uncertainty based on the perceived utility or satisfaction from different outcomes.

Disability Insurance

A type of insurance that provides financial benefits to individuals who are unable to work because of a disabling illness or injury.