Question

if the annual rent expense goes up the operating leverage will________and will give rise to more than proportionate change in______?

a. decrease, EPS
b. decrease, EBIT
c. increase ,EPS
d. increase , EBIT

Answer 1

Operating leverage of a company can enhance the operating income by generating or increasing the revenues.

If an annual rent is increased so the operating leverage will also increase along with the increment in companies earning before interest and Taxes also known as EBIT.

This means that if operating leverage is increased by 15% so EBIT will be increased by 21 or 22 percent.