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12 January, 20:44

You are the manager of a project that has an operating leverage rating of 2.8 and a required return of 14 percent. Due to the current state of the economy, he expects sales to decrease by 7 percent next year. What change should you expect in operating cash flows next year given your sales forecast?

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  1. 12 January, 21:38
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    The change should you expect in operating cash flows next year would be 19.60%

    Explanation:

    In order to calculate the change should you expect in operating cash flows next year given your sales forecast we would have to make the following calculation:

    change should you expect in operating cash flows=operating leverage rating*percentage of decrease sales next year

    change should you expect in operating cash flows=2.8*0.07

    change should you expect in operating cash flows=19.60%

    The change should you expect in operating cash flows next year would be 19.60%
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