[amp_mcq option1=”If sales increase by 2.8%, the EBIT will increase by 1%” option2=”If EBIT increase by 2.896, the EPS will increase by 1%” option3=”If sales rise by 1%, EBIT will rise by 2.8%” option4=”None of the above” correct=”option3″]<\/p>\n
The correct answer is: C. If sales rise by 1%, EBIT will rise by 2.8%<\/strong>.<\/p>\n DOL stands for Degree of Operating Leverage. It is a measure of how sensitive a company’s operating income (EBIT) is to changes in sales. A higher DOL indicates that a company’s EBIT is more sensitive to changes in sales.<\/p>\n A company with a DOL of 2.8 means that if sales increase by 1%, EBIT will increase by 2.8%. This is because a company with a high DOL has a high proportion of fixed costs. When sales increase, the company’s fixed costs do not change, so the company’s EBIT increases by a larger percentage than the increase in sales.<\/p>\n Option A is incorrect because it states that if sales increase by 2.8%, EBIT will increase by 1%. This is not necessarily the case. If a company has a high DOL, then EBIT will increase by more than 1% if sales increase by 2.8%. However, if a company has a low DOL, then EBIT may not increase at all if sales increase by 2.8%.<\/p>\n Option B is incorrect because it states that if EBIT increases by 2.896, the EPS will increase by 1%. This is not necessarily the case. The EPS is calculated by dividing EBIT by the number of shares outstanding. If a company has a high DOL, then EBIT will increase by more than 1% if sales increase by 2.896. However, if a company has a low DOL, then EBIT may not increase at all if sales increase by 2.896.<\/p>\n Option D is incorrect because it states that none of the above is true. However, option C is true.<\/p>\n","protected":false},"excerpt":{"rendered":" [amp_mcq option1=”If sales increase by 2.8%, the EBIT will increase by 1%” option2=”If EBIT increase by 2.896, the EPS will increase by 1%” option3=”If sales rise by 1%, EBIT will rise by 2.8%” option4=”None of the above” correct=”option3″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-56281","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"\n