A project with which one of these sets of values would you be most apt to reject?
A) High operating leverage, sales projected at the accounting break-even level, and no option to abandon
B) High operating leverage, sales projected at the economic break-even level, and an option to abandon
C) Low operating leverage, sales projected at the accounting break-even level, and an option to abandon
D)Low operating leverage, sales projected at the economic break-even level, and an option to expand

Question

Quizplus · Accepted Answer

High operating leverage and no option to abandon make the project particularly risky as it is relying solely on achieving the break-even point to generate a profit. Without the ability to abandon the project if it fails to reach that point, there is a lack of flexibility and potential for significant losses. Additionally, high operating leverage increases the impact of fixed costs on profits, further adding to the risk.

A Project with Which One of These Sets of Values