Compared to an identical project with a lower proportion of fixed costs, a project with a higher proportion of fixed costs will have:
A) a higher degree of sensitivity of EBITDA to a change in revenues.
B) a lower degree of sensitivity of EBITDA to a change in revenues.
C) no discernible difference of a change in sensitivity of EBITDA to a change in revenues.
D) a stable net income stream as a function of revenues.

Question

Quizplus · Accepted Answer

A higher proportion of fixed costs means that a larger portion of the total costs are independent of changes in revenue. Therefore, a small decrease in revenue can lead to a significant decrease in EBITDA, resulting in a higher degree of sensitivity of EBITDA to a change in revenues.

Compared to an Identical Project with a Lower Proportion of Fixed