Last year, Cayman Corporation had sales of $30,000,000, total variable costs of $13,500,000, and total fixed...
Last year, Cayman Corporation had sales of $30,000,000, total variable costs of $13,500,000, and total fixed costs of $5,000,000. In addition, they paid $3,000,000 in interest to bondholders. Cayman has a marginal tax rate of 35 percent. If Cayman's sales increase by 15%, what should be the increase in operating income?
the answer is 21.5% and need help figuring out how to work this problem
Homework Answers
Degree of operating leverage = Contribution margin / EBIT
Degree of operating leverage = ($30,000,000 - $13,500,000) / ($30,000,000 - $13,500,000 - $5,000,000)
Degree of operating leverage = 1.435
Increase in operating income = 1.435 × 0.15
Increase in operating income = 0.215 or 21.5%
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