1. Company U uses highly advanced machinery in the production of computer parts. Company V sells trendy clothing. Consider the degree of operating leverage likely employed by each company. Select which statement below correctly describes companies U and V.
a. V has a lower break-even point than U, but U's profit grows faster after the breakeven.
b. U has a higher break-even point than V, but U's profit grows slower after the breakeven.
c. V has a lower break-even point than U, and profit grows at the same rate for both companies after the break-even point.
d. U has a lower break-even point than V, but U's profit grows faster after the breakeven.
2. UniCorp has a degree of operating leverage of 1.8 and a degree of financial leverage of 1.25. Which of the following statements is true?
a. None of the provided answers are true.
b. Every 1% increase in sales results in a 1.44% increase in EBIT.
c. Every 1% increase in sales results in a 2.25% increase in EPS.
d. Every 1% increase in sales results in a 1.44% increase in EPS.
e. An increase in sales of 2.25% will increase EBIT by double this amount.