Final answer:
The net operating income will increase by 20% as a result of a 5% increase in sales given that the degree of operating leverage is 4. This demonstrates the effect of operating leverage on a company's profitability.
Step-by-step explanation:
The question is about understanding the impact of a change in sales on the net operating income in the context of the degree of operating leverage (DOL). In business, the degree of operating leverage is a financial ratio that measures the sensitivity of a company's operating income to its changes in sales. When the sales increase by a certain percentage, the net operating income increases by the product of this percentage and the degree of operating leverage.
In this particular scenario, if sales increase by 5% and the DOL is 4, then the net operating income should increase by 5% * 4, which is 20%. This means that a small percentage increase in sales can lead to a much larger percentage increase in net operating income, emphasizing the high level of operating leverage.