Which one of these projects would you always reject?
A) High operating leverage, sales projected at the accounting break-even level, and no option to abandon or expand.
B) High operating leverage, sales projected at the NPV break-even level, and an option to abandon or expand.
C) Low operating leverage, sales projected at the accounting break-even level, and an option to abandon or expand.
D) Low operating leverage, sales projected at the NPV break-even level, and an option to abandon or expand.

Question

Quizplus · Accepted Answer

Project A has high operating leverage, meaning that fixed costs make up a significant portion of total costs, which can lead to high financial risk. Additionally, the project is only projected to break even at the accounting level, indicating low profitability. Finally, there is no option to abandon or expand, which limits flexibility in response to changing market conditions or unforeseen events.

Which One of These Projects Would You Always Reject