If a firm's accounting degree of operating leverage is 1.12, then a 10 percent increase in revenue should result in a 12 percent increase in EBIT.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) indicates the percentage change in EBIT for a 1% change in sales. A DOL of 1.12 means that a 10% increase in revenue would result in a 1.12 * 10% = 11.2% increase in EBIT, not 12%.

If a Firm's Accounting Degree of Operating Leverage Is 1