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Understanding Risk in Investment Projects

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Understanding Risk in Investment Projects

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Questions and Answers

What is business risk primarily associated with?

The amount of variable costs a company incurs

The level of fixed costs a company has

The variability in a company's income over time (correct)

The degree of financial leverage a company employs

Which type of companies typically experience relatively stable income patterns?

Manufacturing companies

Utility companies (correct)

Technology companies

Retail companies

What is financial risk tied to?

A company's fixed costs (correct)

A company's revenue

A company's variable costs

A company's market share

What is the contribution margin ratio?

Contribution margin as a percentage of sales Signup and view all the answers

What does the Degree of Operating Leverage (DOL) measure?

Whether a company's variable or fixed costs are higher Signup and view all the answers

What is the purpose of the Degree of Operating Leverage (DOL)?

To quantify a company's operating risk Signup and view all the answers

What is the formula for calculating the contribution margin?

CM = Sales - Variable Costs Signup and view all the answers

Which type of costs allow a company to adjust its operating costs?

Variable costs Signup and view all the answers

What increases a company's operating risk?

A higher proportion of fixed costs Signup and view all the answers

What is the formula for calculating the Degree of Operating Leverage (DOL) not provided in the text?

The formula for DOL is not mentioned in the text Signup and view all the answers