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A 10% increase in sales increases EBIT by 25% in a company. DOL is:
A1.5
B2.0
C3.0
D2.5
Answer & Solution
Correct answer: D. 2.5
1. DOL = %ΔEBIT / %ΔSales = 25% / 10%.
2. Result = 2.5.
3. A 1% change in sales translates to 2.5% change in EBIT.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §3.1_
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