Kulwicki Corporation Wants to Determine the Effect of an Expansion

question 13

Multiple Choice

Kulwicki Corporation wants to determine the effect of an expansion of its sales on its operating income (EBIT) .The firm's current degree of operating leverage is 4.50.It projects new unit sales to be 170,000,an increase of 45,000 over last year's level of 125,000 units.Last year's EBIT was $60,000.Based on a degree of operating leverage of 4.50,what is this year's expected EBIT with the increase in sales?

• A) $157,200
• B) $138,336
• C) $196,500
• D) $193,356
• E) $147,768

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Definitions:

Treasury Stock

Shares of a company's own stock that it has repurchased from shareholders and can hold, reissue, or retire.

Common Stock

Represents ownership shares in a corporation, giving shareholders voting rights and a residue claim on corporate earnings in the form of dividends.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to investors, which are reinvested in the business.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenues.