A company is trying to decide which of two independent projects they should accept. The company is concerned that the estimates provided for the projects are overly optimistic. In this case, the firm should:
A) Ignore DOL, and select the highest NPV project.
B) Consider both DOL and NPV when making the decision.
C) Select the project with the highest accounting return.
D) Select the project with the shortest payback period.
E) Select the project with the lowest DOL.

Question

Quizplus · Accepted Answer

Considering both Degree of Operating Leverage (DOL) and Net Present Value (NPV) is important. DOL helps assess the project's risk by showing how sensitive it is to changes in sales volume, while NPV provides a measure of the project's profitability.

A Company Is Trying to Decide Which of Two Independent