Evaluate the following statement: If The Tower of Pizza has a cash flow degree of operating leverage equal to 1.15, then a 20 percent increase in revenue should drive a 35 percent increase in pretax operating cash flow.

Question

Quizplus · Accepted Answer

A cash flow degree of operating leverage (DOL) of 1.15 means that a 1% increase in revenue would lead to a 1.15% increase in operating cash flow. Therefore, a 20% increase in revenue would result in a 23% (20% * 1.15) increase in pretax operating cash flow, not 35%.

Evaluate the Following Statement: If the Tower of Pizza Has