For a Firm with a DOL of 3

question 12

Multiple Choice

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

• A) increase pretax profits by 3.5%.
• B) decrease pretax profits by 3.5%.
• C) increase pretax profits by 21.0%.
• D) increase pretax profits by 1.71%.

---

Definitions:

Bank Overdraft

A facility allowing an entity to withdraw more money from a bank account than has been deposited, within a previously agreed limit.

Unsecured Convertible Notes

Debt instruments that can be converted into a predetermined amount of the issuer's equity and do not have collateral backing.

Debentures Issued

Long-term securities issued by a company to raise capital, backed only by the general creditworthiness and reputation of the issuer.

Preference Shares

A type of share that typically grants its holders priority over ordinary shareholders in receiving dividends and upon liquidation of the company's assets.