The method we have discussed for valuing a company assumes that net operating margin (NOPM)...
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Accounting
The method we have discussed for valuing a company assumes that net operating margin (NOPM) remains constant even as sales increase over time. Under which of the following conditions would this actually not really be a good assumption?
1. A significant portion of operating expenses is fixed, which likely would not increase if sales increase.
2. A significant portion of operating expenses is variable, which likely would increase at a faster rate than the rate that sales increase.
3.Net operating margin is likely to be significantly affected by changes in net operating asset turnover (NOAT), which decreases as net sales increase over time.
4. Increase in sales over time is likely to affect the discount rate, which would likely affect net operating margin.
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