In 2010, Hernandez Co. had sales of $3,000,000, profits of $420,000, and a degree of operating leverage of 8. The company expects a 15% increase in sales for 2011. As such profits should increase by

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The degree of operating leverage (DOL) indicates how a percentage change in sales will affect profits. With a DOL of 8, a 15% increase in sales will result in a 15% * 8 = 120% increase in profits. The increase in profits is 120% of $420,000, which is $504,000.