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A review of the degree of operating leverage (DOL) It is December 31. Last year, Praxis Corporation had sales of $8,000,000, and it forecasts that
A review of the degree of operating leverage (DOL) It is December 31. Last year, Praxis Corporation had sales of $8,000,000, and it forecasts that next year's sales will be $8, 800,000. Its fixed costs have been and are expected to continue to be $1,000,000, and its variable cost ratio is 40.00%. Praxis's capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 6.00%, and 300,000 shares of common equity. The company's profits are taxed at a marginal rate of 35.00%. Given this data, complete the following sentences: The percentage change in the company's sales is _____ The percentage change in EBIT is _____ The degree of operating leverage (DOL at $8, 800,000 is _____ There are several ways to use and interpret a firm's DOL value. Consider the following statement and indicate whether it accurately reflects the meaning or an appropriate use of a firm's DOL value. Assume that a firm's fixed costs remain constant across a range of sales values. As its DOL will vary across a result, the range of sales values. True or False: This statement accurately describes a firm's DOL. False True
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