Finding All Leather's Cost of Equity (Cont)
{"Image DocumentName": "Finding All Leather\u2019s Cost of Equity (Cont)", "Image ImageDescription": "Other factors, besides economic sensitivity, impact beta. A firm\u2019s cost structure & production process very important. Mix of variable & fixed costs determines operating leverage. OL implies CF volatility will rise with fixed cost. Substituting fixed for variable cost increases profits more than proportionally when sales increase, but hurt if sales fall. Define degree of operating leverage (DOL) as %\uf044 in EBIT divided by %\uf044 in sales. High DOL: small change in sales \uf0de large change in EBIT. (Eq 9.2) Table on next slide details All Leather\u2019s & competitor\u2019s costs & prices. Microfiber also produces sofas, but less fixed costs.", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}