For a Levered Firm

question 7

Multiple Choice

For a levered firm,

• A)as earnings before interest and taxes (EBIT)increases, earnings per share (EPS)increases by the same percentage.
• B)as EBIT increases, EPS increases by a larger percentage.
• C)as EBIT increases, EPS decreases by the same percentage.
• D)as EBIT increases, EPS decreases by a larger percentage.

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Definitions:

Compounded Monthly

The process of adding interest to the principal sum of a loan or deposit, or in other words, interest on interest, on a monthly basis.

Compounded Annually

Interest on an investment or loan calculated once a year on both the initial principal and the accumulated interest from previous periods.

RRSP

Registered Retirement Savings Plan, a Canadian retirement savings vehicle that offers tax benefits.

Ordinary Annuity

Definition: An annuity for which the payment or receipt of funds happens at the end of each period.