For a Firm with a DOL of 3

question 16

Multiple Choice

For a firm with a DOL of 3.5, an increase in sales of 6 percent will:

• A)Increase pretax profits by 3.5 percent
• B)Decrease pretax profits by 3.5 percent
• C)Increase pretax profits by 21.0 percent
• D)Increase pretax profits by 1.71 percent

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Definitions:

Market Value

The ongoing rate for purchasing or selling a good or service in the marketplace.

Inventory Valuation Method

A system used by businesses to assess the cost of their inventory, affecting financial statements and taxation.

Gross Profit

The financial metric calculated by subtracting the cost of goods sold from the net sales, representing the profit from sales before deducting operating expenses.

LIFO

An inventory valuation method that assumes the last items placed in inventory are the first ones sold, standing for Last In, First Out.