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A firm has DOL = 3 and a 5% increase in sales. What is the % change in EBIT?
A5%
B10%
C15%
D20%
Answer & Solution
Correct answer: C. 15%
1. %ΔEBIT = DOL × %ΔSales = 3 × 5%.
2. Result = 15%.
3. Demonstrates how operating leverage magnifies sales changes.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §3.1_
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