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 expected change in operating cash flow can be calculated using the degree of operating leverage (DOL). The formula is: % Change in Operating Cash Flow = DOL * % Change in Sales. Here, it's 2.6 * (-8%) = -20.8%.

TR Industries Manage a Product with a 2