What percentage change in sales occurs if profits increase by 2% when the firm's degree of operating leverage is 3.5?
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- Your business plan for your proposed start-up firm envisions first-year revenues of $180,000, fixed costs of $60,000, and variable costs equal to one-third of revenue. a. What are expected profits based on these expectations? (Round your answer to nearest whole number.) Expected profit b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits? (Round your answer to 2 decimal places.) Degree of operating leverage c. If sales are 10% below expectation, what will be the percentage decrease in profits? (Round your answer to nearest whole number.) Decrease in profits %How many statements below about operating leverage are correct? 1. Operating leverage measures the sensitivity of a firm's operating income to changes in the firm's level of sales. 2. Automated operations results to greater operating leverage for the firm than mechanical operations. 3. An operațing leverage of 5 means that a firm's operating income will increase by P0.5 for every P1 increase in sales. 4. Operating leverage will decrease as the firm's margin of safety increases. 5. The higher the firm's operating leverage, the higher is its income potential but at the same time, the higher the risk of incurring loss. 1 2 4The degree of operating leverage is 2.5 and degree of financial leverage is 1.6 of a firm then the %change im EPS is what if quantity increases by 5%?
- What is the firm's ROE ???Suppose sales volume increase by the same percentage for Company X and Company Y. Use CVP analysis to explain which company will experience a larger percentage increase in profits? Company X - Dominated by fixed expenses; or Company Y - Dominated by variable expenses.which of the following occurs if a company decreases its selling price per unit? a. net income increase b. more than one of the answers would occur c. contribution margin ration increase d. break even point increase e. contribution magrin increase
- Suppose that a company had a target of 4.000.000 £ of sales revenues and 1.000.000 £ of profits. However, due to macroeceonomic reasons, the company had only achieved half of the sales target and generated 200.000 £ of profits only. What is the margin of safety ratio in the current year? What is the degree of operating leverage for the company at the target profit level?which one is correct please confirm? QUESTION 7 A firm that has a 2.5 DOL (degree of operating leverage) would find that an 8% increase in EBIT would result from a ____ increase in sales. a. 3.2% b. 5.4% c. 20.0% d. 2.0%Consider a company that pays out all its earnings (i.e., the payout ratio = 1 or plowback/retention ratio=0). The required return for the firm is 13%. Compute the intrinsic P/E if its ROE is 15%. Compute the intrinsic P/E if its ROE is 20%. Discuss why your answers to parts (a) and (b) differ or do not differ from one another. Suppose that the company’s ROE is 13%. Compute its intrinsic P/E value. Would the answer to part (d) change if the company retained half of its earnings instead of paying all of them out? Discuss why or why not.
- Sales for Green Inc. are expected to change by 16%. If Green's degree of operating leverage is 2.20, how much is Green's operating income expected to change? A В D E 1 2 3 Green's operating income is expected to change by: 4 6 7 8 9 10Need helpSheffield Corp.'s degree of operating leverage is 1.9. Warren Corporation's degree of operating leverage is 6. Warren's earnings would go up (or down) by as much as Sheffield's with an equal increase (or decrease) in sales. O 4.1 times O 3.2 times O 0.9 O 7.9 times
