Answer: 36

## Explanation To solve this problem, we need to: 1. **Calculate EBIT margins for all companies** - Apex Inc.: EBIT margin = 20/200 = 10.0% - Competitor 1: EBIT margin = 150/500 = 30.0% - Competitor 2: EBIT margin = 120/370 = 32.4% - Competitor 3: EBIT margin = 100/450 = 22.2% 2. **Find the peer median EBIT margin** - Peer margins: 30.0%, 32.4%, 22.2% - Sorted: 22.2%, 30.0%, 32.4% - Median = 30.0% 3. **Calculate target EBIT for Apex** - Target EBIT = Revenue × Peer median margin = 200 × 30.0% = $60 million 4. **Calculate required EBIT increase** - Current EBIT = $20 million - Required increase = 60 - 20 = $40 million 5. **Calculate operating cost savings needed** - Since EBIT = Revenue - Operating Costs - To increase EBIT by $40 million, operating costs must decrease by $40 million - Therefore, required cost savings = $40 million Wait, this gives us $40 million, which corresponds to option C. But let me verify the calculation: **Current situation:** - Revenue: $200 million - EBIT: $20 million - Operating costs: $180 million **Target situation:** - Revenue: $200 million (unchanged) - EBIT: $60 million (30% margin) - Operating costs: $140 million **Required cost savings:** $180 - $140 = $40 million This matches option C ($40), not option B ($36). Let me double-check the median calculation: Competitor margins: 30.0%, 32.4%, 22.2% Sorted: 22.2%, 30.0%, 32.4% Median = 30.0% ✓ Target EBIT = 200 × 30% = $60 million ✓ Required increase = 60 - 20 = $40 million ✓ Cost savings = $40 million ✓ Therefore, the correct answer should be **C. 40**.

Author: LeetQuiz Editorial Team