Margin of Safety Increases with Lower Break-Even or Higher Forecast Revenue

Steps:

• Margin of safety (MOS) = (Forecast revenue - Break-even revenue) / Forecast revenue.
• Decreasing break-even revenue widens the gap in the numerator, raising MOS.
• Increasing forecast revenue widens the numerator more than it expands the denominator, raising MOS.
• Decreasing or increasing break-even/forecast oppositely affects the gap.

Why B is correct:

• MOS formula shows it rises when break-even revenue falls (option 1, larger numerator) or forecast revenue rises (option 4, proportionally larger numerator).

Why the others are wrong:

• A: Option 3 shrinks numerator, lowering MOS.
• C: Option 2 narrows numerator, lowering MOS.
• D: Option 2 narrows numerator, lowering MOS.

Final answer: B