This relationship holds for all types of leverage

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Unformatted text preview: age discussed in this chapter. 6. Technically, the formula for DOL given in Equation 12.5 should include absolute value signs because it is possible to get a negative DOL when the EBIT for the base sales level is negative. Because we assume that the EBIT for the base level of sales is positive, we do not use the absolute value signs. 7. When total sales in dollars—instead of unit sales—are available, the following equation, in which TR dollar level of base sales and TVC total variable operating costs in dollars, can be used. DOL at base dollar sales TR TR TVC TR TVC FC This formula is especially useful for finding the DOL for multiproduct firms. It should be clear that because in the case of a single-product firm, TR P Q and TVC VC Q, substitution of these values into Equation 12.5 results in the equation given here. CHAPTER 12 FOCUS ON PRACTICE In Practice Adobe’s Design for Profitability Adobe Systems, the second largest PC software company in the United States, dominates the graphic design, imaging, dynamic media, and authoring-tool software markets. Web site designers prefer its Photoshop and...
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