Operating Leverage. A project has fixed costs of $1,000 per year, depreciation charges of $500 a year,
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Operating Leverage. A project has fixed costs of $1,000 per year, depreciation charges of
$500 a year, revenue of $6,000 a year, and variable costs equal to two-thirds of revenues.
a. If sales increase by 5 percent, what will be the increase in pretax profits?
b. What is the degree of operating leverage of this project?
c. Confirm that the percentage change in profits equals DOL times the percentage change in sales.
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Related Book For 
Study Guide To Accompany Fundamentals Of Corporate Finance
ISBN: 9780073012421
5th Edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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