8. As a business manager would you be feeling a sensitivity in sales level with year 8's degree of operating leverage, assuming that the relevant range for fixed expenses is fairly wide? Yes Yes, because for every 1% change in sales, either plus or minus, net operating income will change by 5% No No, because for every 1% change in sales, either plus or minus, net operating income will change by 5% Income State COGS Cont Inc St BalSheetWACC CashFlowSt Exhibit 2 Westfield Corporation Contribution Format Income Statement Year 6 Yr6% $18,370,000 100.00% Year 7 Yr7% $21,331,000 100.00% Year 8 Yr 8% $24.360,500 100.00% Proforma Year 9 $30,762,309 Yrg 100 Net Sales Revenue less: Variable Expenses Variable Production Variable Marketing Variable Administrative Total Variable Expenses 7,663,440 1,600,000 0 9.263,440 8,554,680 2,090,000 0 10.644680 10.064.618 2.950,000 0 13.014.618 41.32% 12.11% 0.00% 53.43% OOOO 0 50.43% 49.90% 0 9,106,560 49.57% 10,686,320 50.10% 11,345,882 46.57% 30,762,309 100 Contribution Margin less: Fixed Expenses Fixed Production Fixed Marketing Fixed Administrative Total Fixed Expenses 2,103,000 3,758,000 1.845,000 7.706.000 2.246,000 4,104,000 2,004,000 8.354.000 2,523,000 4,060,000 2.202.000 8.785,000 10.36% 16.67% 9.04% 36.06% oooo 41.95% 39.16% $0 Net Operating Income $1.400.560 7.62% $2.332 320 10.93% $2.560,882 10.51% $30.762.309 100 9. Does the trend in the degree of operating leverage from year 6 to year 7 to year 8 suggest anything to you? Sales revenue is declining and fixed expenses even though they are declining, declined less fast than sales The degree of operating leverage is declining, so the sensitivity of sales levels is increasing Fixed expenses as a percentage of sales are increasing The degree of operating leverage is declining, so the sensitivity of sales levels is declining