You Have Computed the Break-Even Point Between a Capital Structure

question 219

Multiple Choice

You have computed the break-even point between a capital structure that has no debt and one that has debt. Assume there are no taxes. At the break-even level, the:

• A) Firm is just earning enough to pay for the cost of the debt.
• B) Firm's earnings before interest and taxes are equal to zero.
• C) Earnings per share for the levered option are exactly double those of the unlevered option.
• D) Advantages of leverage exceed the disadvantages of leverage.
• E) Firm has a debt-equity ratio of.50.

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Definitions:

Veins

Blood vessels that carry blood toward the heart, typically containing valves to prevent backflow.

Muscle Decreases

The reduction in muscle mass and strength, often attributed to aging, inactivity, or specific health conditions.

Bone Density

A measure of the amount of minerals (such as calcium) contained in a certain volume of bone, reflecting its strength and the risk for conditions like osteoporosis.

Aerobic Capacity

The maximum amount of oxygen the body can utilize during a specified period of usually intense exercise, a measure of cardiovascular fitness.