Forty South Ltd has determined that if its revenue was to increase by 10 per cent, then EBIT would increase by 23 per cent to $130 000. The fixed costs (cash only) for the company are $99000. The cost of capital is 10 percent.

Required

Part (a) Given the same 10 per cent increase in revenue, what would be the corresponding change in EBITDA.

[8 marks]

Part (b) Briefly explain the difference between the degree of pre-tax cash flow operating leverage and the degree of accounting operating leverage. Also, explain why a corporate decision-maker might be more interested in the cash-flow metric.