Question

All other things equal, the margin of safety in a company with high fixed costs and low variable costs will tend to be higher than the margin of safety in a similar company that has low fixed costs and high variable costs.

True or false?

Answer 1

True

Step-by-step explanation:

The margin of safety describes the difference between actual sales and break even sales,it can also be seen as the difference between the intrinsic value of a commodity and its actual market value. the higher the fixed cost with a corresponding low variable cost the higher the margin of safety a company would have with other things been equal

But the lower the fixed cost with a corresponding high variable cost the lower the margin of safety a company will have. with other things been equal

The margin of safety is used to know how profitable a commodity would be and also to measure the level at which market factors like deflation would affect its performance in the open market

Answer 2

Answer:TRUE

Explanation:Margin of safety is stern used in accounting to describe the difference between the actual sales and break-even sales.

Margin of safety is a very important term in making investment decisions in which an investor only purchases securities when their market price is significantly below their intrinsic (internal) value.

Benjamin Graham and his followers like Warren Buffet are the ones that popularised Margin of safety.

ALL OTHER FACTORS REMAINING THE SAME THE MARGIN OF SAFETY FOR AN INVESTMENT WITH HIGH FIXED COST AND LOW VARIABLE COST WILL BE HIGHER THAN THE ONE WITH A HIGH VARIABLE COST AND A LOW FIXED COST.