You are considering an investment in either apollo company or carson, inc. both operate in the same industry, and this industry is expected to experience a significant downturn in sales in the coming year. apollo’s sales, variable costs, and fixed costs are $2,000,000, $1,400,000, and $200,000, respectively. carson’s sales, variable costs, and fixed costs are $2,000,000, $800,000, and $800,000, respectively. which company is the most advantageous investment, and why?
a : carson, inc. is the most advantageous investment because it has the lower degree of operating leverage meaning that for each dollar of lost sales, its income will go down less than apollo’s.
b : apollo company is the most advantageous investment because it has the lower degree of operating leverage meaning that for each additional dollar of lost sales, its income will go down less than carson’s.
c : carson, inc. is the most advantageous investment because its margin of safety ratio is lower meaning that it has a lesser chance of dipping into its margin of safety and therefore reporting a net loss.
d : apollo company is the most advantageous investment because its margin of safety ratio is lower meaning that it has a lesser chance of dipping into its margin of safety and therefore reporting a net loss.
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