Problem:
You are the manager of a project that has a 2.8 degree of operating leverage and a required return of 14 percent. Due to the current state of the economy, you expect sales to decrease by 7 percent next year.
Required:
Question: What change should you expect in the operating cash flows next year given your sales prediction?
- 19.60 percent decrease
- 16.03 percent decrease
- 13.46 percent decrease
- 5.60 percent decrease
- 2.74 percent decrease
Note: Provide support for your rationale.