Which of the following best describe the term operating leverage.
A) Investigation of what happens to NPV when only one variable is changed.
B) The determination of what happens to NPV estimates when we ask what-if questions.
C) The degree to which a ﬁrm or project relies on ﬁxed costs.
D) The change in costs that occurs when there is a small change in output.
E) Taking into account the managerial options that are implicit in a project.

Question

Quizplus · Accepted Answer

Operating leverage is the degree to which a firm or project relies on fixed costs. It measures the impact of changes in sales or revenue on operating income, assuming that variable costs remain constant. A high degree of operating leverage means that a small change in sales can lead to a large change in operating income. This concept is important in financial analysis and decision-making.

Which of the Following Best Describe the Term Operating Leverage