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Calculate and analyze the degree of operating leverage

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A project has a fixed cost of $1,000 per year, depreciation charges of $500 a year, revenue of $6,000 a year and variable costs equal to two-thirds of revenues.

A. If sales increase by 5%, what will be the increase pretax profits

B. What is the degree of operating leverage of this project

C. Confirm that the percentage change in profits equals DOL times the percentage of change in sales

See attached template 8-21

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