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Question 7 Which of the following is/are true? Group of answer choices b) As DOL rises,...

Question 7

Which of the following is/are true?

Group of answer choices

b) As DOL rises, expected EPS rises

c) As DOL rises, expected coefficient of variation falls

a) As DOL rises, fixed costs as a percentage of total costs increases

None of the other answers is true

All of the above are true

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Answer #1

Ans- OPTION C.

DOL= - Contribution EBIT

When Fixed Cost as a percentage of Total Costs increases EBIT decreases which in turn increases DOL. When fixed Cost increases, DOL rises which in turn Decreases EPS.

Hence, As DOL rises, fixed costs as a percentage of total costs increases

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