TR Industries manage a product with a 2.6 degree of operating leverage. Sales of the product are expected to decline by 8 percent next year as an economic downturn is anticipated. What is the
Expected change in the operating cash ﬂow for this product for next year?
A) -20.8 percent
B) -5.4 percent
C) 5.4 percent
D) 10.8 percent
E) 20.8 percent

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) indicates how a percentage change in sales will affect operating cash flow. With a DOL of 2.6, an 8% decline in sales will result in a 2.6 * (-8%) = -20.8% change in operating cash flow.

TR Industries Manage a Product with a 2