olympian Corporation\'s sales increased from $50 million to $60 million. At the

Question

olympian Corporation's sales increased from $50 million to $60 million. At the same the Company's Earning before interest and taxes rose from $3 million to $4 million and its net income rose from $700,000 to $1,400,000. The Company's Earnings per Share followed the same pattern as the Company's Net Income. If Olympian's income tax rate is 30%,its degree 7) The time, of operating leverage and financial leverage are CLOSEST TO (3 Points): pe ating Leverage Degree ofFinancial Leverage 1.67 5.00 1.67 5.00 3.00 1.00 5.00 3.00

Explanation / Answer

Select ...... Option - C

Operating leverage = 1.67 and Financial leverage = 5

Degree of operating leverage = Percentage change in EBIT / Percentage change in sales

= 33.33% / 20 % = 1.67

Degree of Financial leverage = Percentage change in Net Income / Percentage change in sales

= 100 % / 20 % = 5

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