The following table summarizes the percentage changes in operating income, percentage changes in revenue and betas for four pharmaceutical firms.
|
Firm |
% Change in Revenue |
% Change in Operating Income |
Beta |
|
PharmaCorp |
27% |
25% |
1 |
|
SynerCorp |
25% |
32% |
1.15 |
|
BioMed |
23% |
36% |
1.3 |
|
Safemed |
21% |
40% |
1.4 |
a. Calculate the degree of operating leverage for each of these firms.
b. Use the operating leverage to explain why these firms have different betas.