Durosteel Shafts Inc.supplies cam shafts to GM for their popular Chevy Malibu model.Automobile sales fell significantly during the recent financial crisis.Now,at the end of Year 1,GDP is growing again and GM is forecasting an increase in automobile sales of 11% over the coming year.Use the data in the table to estimate Durosteel's operating profit margin (EBIT/Sales) for Year 2.

Question

Quizplus · Accepted Answer

DOL = 11ea7fdb_fc58_b9ec_a768_eb2dae70dc6b_TB2902_11 %ΔEBIT = %ΔSales × DOL
%ΔEBIT = 11% × 1.5 = 16.5%
Year 2 EBIT = 60 × 1.165 = $69.90
Operating Profit Margin = 11ea7fdb_fc58_b9ed_a768_2f79e7ac7778_TB2902_11 = 11ea7fdb_fc58_b9ee_a768_d1e3fc4dac61_TB2902_11 = 0.0684 or 6.84%