Assume you graph a project's net present value given various sales quantities. Which one of the following is correct regarding the resulting function?
A) The steepness of the function relates to the project's degree of operating leverage.
B) The steeper the function, the less sensitive the project is to changes in the sales quantity.
C) The resulting function will be a hyperbole.
D) The resulting function will include only positive values.
E) The slope of the function measures the sensitivity of the net present value to a change in sales quantity.

Question

Quizplus · Accepted Answer

The slope of the function measures the sensitivity of the net present value to a change in sales quantity. A steeper slope means that the project is more sensitive to changes in sales quantity, while a shallower slope indicates that the project is less sensitive to changes in sales quantity. The resulting function does not have to be a hyperbole and can include negative values depending on the specific project's cash flows. Option A is incorrect as the steepness of the function does not relate to the project's degree of operating leverage, and option D is incorrect as the function can include negative values.

Assume You Graph a Project's Net Present Value Given Various