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If a firm's degree of operating leverage is 8, what percentage change in sales revenue is required to double the firm's EBIT?
A) 100%
B) 8%
C) 12.5%
D) None of the above
Operating Leverage
A measure of how sensitive a company's operating income is to a change in its sales volume, emphasizing the impact of fixed costs.
EBIT
Earnings Before Interest and Taxes represents a metric for gauging a firm's profit, specifically excluding expenses related to interest and taxes.
Sales Revenue
The total amount of money generated from the sale of goods or services before any expenses are subtracted.
- Understand the concept of operating leverage and how it affects a firm's earnings before interest and taxes (EBIT).
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Learning Objectives
- Understand the concept of operating leverage and how it affects a firm's earnings before interest and taxes (EBIT).
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