You Are Comparing Two Possible Capital Structures for a Firm

question 48

Multiple Choice

You are comparing two possible capital structures for a firm.The first option is an all-equity firm.The second option involves the use of $3.8 million of debt.The break-even point between these two financing options occurs when the earnings before interest and taxes (EBIT) are $428,000.Given this, you know that leverage is beneficial to the firm:

• A)whenever EBIT is less than $428,000.
• B)only when EBIT is $428,000.
• C)whenever EBIT exceeds $428,000.
• D)only if the debt is decreased by $428,000.
• E)only if the debt is increased by $428,000.

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Definitions:

Independent Variable

In experimental and observational studies, a variable that is manipulated or observed to determine its effects on a dependent variable.

Television Viewing

The act of watching content on a television set, which can include broadcasts, streaming services, and recorded programs.

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Actions that are hostile, forceful, or attacking, intended to dominate or result in harm to others.

Sanctioning

The act of imposing penalties or granting approvals by an authoritative body to regulate behavior within a social or legal context.