10.5 Reworking Table 10-6 for the normal level of sales and 10% higher sales gives the following:...
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10.5 Reworking Table 10-6 for the normal level of sales and 10% higher sales gives the following:
For the high-fixed-cost policy, profits increase by 54.5%, from $550,000 to $850,000. For the low-fixed-cost policy, profits increase by 46.5%. In both cases the percentage increase in profits equals DOL times the percentage increase in sales. This illustrates that DOL measures the sensitivity of profits to changes in sales.
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Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus
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