If a Firm That Has a Degree of Operating Leverage

question 6

Multiple Choice

If a firm that has a degree of operating leverage (DOL) greater than 1.0 experiences a 1.0 percent change in _____, its earnings before interest and taxes (EBIT) will change by _____1.0 percent. 

• A)earnings per share; greater than
• B)net income; greater than
• C)net operating income; less than
• D)sales; greater than
• E)fixed costs; less than

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Definitions:

Opportunity Cost

The cost of missing out on potential benefits from other alternatives when making a choice.

Forgone Current Income

The income an individual or entity could have earned but chose to forego for pursuing an alternative.

State Universities

Public institutions of higher education that are primarily funded by a state or local government.

Opportunity Cost

The result of losing potential upsides from other choices by committing to one.