The Immaculate hotel has a degree of operating leverage index of 2 and a degree of financial leverage of 2.5. If its room nights sold increased by 8%, by how much would you expect its earning per share to rise?

Question

Quizplus · Accepted Answer

40%The total leverage effect can be calculated by multiplying the degree of operating leverage (DOL) by the degree of financial leverage (DFL), which is 2 * 2.5 = 5. Then, to find the expected increase in earnings per share, multiply this total leverage by the percentage increase in sales, which is 5 * 8% = 40%.

The Immaculate Hotel Has a Degree of Operating Leverage Index