Which one of the following characteristics best describes a project that has a low degree of operating leverage?
A) High variable costs relative to the fixed costs
B) Relatively high initial cash outlay
C) OCF that is highly sensitive to the sales quantity
D) High level of forecasting risk
E) High depreciation expense

Question

Quizplus · Accepted Answer

A low degree of operating leverage means that the project's costs are mostly variable (as opposed to fixed), meaning that changes in sales volume will have a smaller impact on the company's operating cash flow. High variable costs relative to fixed costs would reduce the degree of operating leverage.

Which One of the Following Characteristics Best Describes a Project