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Bendel Inc. has an operating leverage of 5.9. If the company's sales increase by 10%, its net operating income should increase by about: Multiple Choice 59.0% 1.7% 10.0% 47.4%

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Final answer:

When Bendel Inc. experiences a 10% increase in sales, its net operating income is expected to increase by 59%, calculated by multiplying the percentage increase in sales by the operating leverage of 5.9.

Step-by-step explanation:

Operating leverage is a financial metric that shows how a percentage change in sales will affect the net operating income. This is particularly important in understanding how fixed and variable costs of a company can affect its earnings before interest and taxes (EBIT). Given that Bendel Inc. has an operating leverage of 5.9, this means that for every 1% change in sales, there is a corresponding 5.9% change in net operating income (NOI).

To calculate the change in NOI when there's a 10% increase in sales, we multiply the percentage increase in sales by the degree of operating leverage:

Change in NOI = Percentage change in sales × Operating leverage

Change in NOI = 10% × 5.9 = 59%

Therefore, with a 10% increase in sales, Bendel Inc.'s net operating income should increase by 59%.

User HsnVahedi
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3 votes

Answer:

The operating Income should increase by about 59.0%.

Step-by-step explanation:

Degree of Operating Leverage = % Change in EBIT / % Change in Sales

5.9 = % Change in EBIT / 10%

% Change in EBIT = 5.9 * 10% = 59.0%

User FBC
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