If a firm's degree of operating leverage is 8, what percentage change in sales revenue is required to double the firm's EBIT?
A)100%
B)8%
C)12.5%
D)None of the above

Question

Quizplus · Accepted Answer

Degree of operating leverage = % change in EBIT / % change in sales revenue. 
Here, we know the degree of operating leverage is 8 and we need to double EBIT, which means we need a 100% increase in EBIT. 
Using the above formula, we can calculate that a 12.5% increase in sales revenue (8 x 12.5% = 100%) is required to achieve a 100% increase in EBIT. Therefore, the correct answer is C, 12.5%.

If a Firm's Degree of Operating Leverage Is 8, What