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  3. consider the following information about two ficti

Consider the following information about two fictional companies, Company A and Company B, and answer...

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Accounting

Consider the following information about two fictional companies, Company A and Company B, and answer the related questions.

Company A Company B
Revenue 100.00 100.00
Variable Costs (20.00) (60.00)
Contribution Margin 80.00 40.00
Fixed Costs (60.00) (20.00)
Operating Income 20.00 20.00

1. Which Company appears to have higher operating leverage?

----Company A

---Company B

---They have the same leverage

2. Suppose that analysts expect the industry in which Company A and B operate to grow by at least 10% in the coming year. Assuming that the cost structures remain the same and both companies (A & B) should be able to equally share in this industry growth, which would you prefer to invest in? Why?

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