The fixed costs of a project are $8,000. The depreciation expense is $3,500 and the operating cash flow is $20,000. What is the degree of operating leverage for this project?
A) .40
B) .71
C) .87
D) 1.40
E) 2.50

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as: DOL = 1 + (Fixed Costs / Operating Cash Flow). Plugging in the given values: DOL = 1 + (8000 / 20000) = 1.40.

The Fixed Costs of a Project Are $8,000