If a firm's sales change by 15% and it has a degree of operating leverage (DOL)of 2.0, what is the expected change in earnings before interest and taxes (EBIT)?
A)30%
B)40%
C)50%
D)60%

Question

Quizplus · Accepted Answer

The expected change in EBIT is calculated by multiplying the percentage change in sales by the degree of operating leverage (DOL). Therefore, a 15% change in sales with a DOL of 2.0 results in a 30% change in EBIT (15% * 2.0 = 30%).

If a Firm's Sales Change by 15% and It Has