Please provide correct answer accounting question Ostler Company's net income last year was $10,000 and itscontribution margin was $50,000. Using the operating leverageconcept, if the company's sales increase next year by 8%, net incomecan be expected to increase by:A. 16%B. 20%C. 40%D. 160%

Step 1: Define Contribution MarginThe contribution margin is used to determine the operating…

Answered: Ostler Company's net income last year…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Chapter9: Capital Budgeting And Cash Flow Analysis

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Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?
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Ostler Company's net income last year was $10,000 and its contribution margin was $50,000. Using the operating leverage concept, if the company's sales increase next year by 8%, net income can be expected to increase by: A. 16% B. 20% C. 40% D. 160%