Debt Financing Is Used, Which of the Following Is CORRECT

question 4

Multiple Choice

debt financing is used, which of the following is CORRECT?

• A)The percentage change in net operating income will be greater than a given percentage change in net income.
• B)The percentage change in net operating income will be equal to a given percentage change in net income.
• C)The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.
• D)The percentage change in net income will be greater than the percentage change in net operating income.
• E)The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.

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Definitions:

Uncertain Event

An occurrence or outcome that cannot be predicted with total confidence due to the unpredictability of certain factors or information.

Odds Increase

"Odds increase" implies that the probability or likelihood of a specific event or outcome happening is rising.

Gambler's Fallacy

The incorrect belief that future probabilities are altered by past events in a random process.

State Lottery

A government-regulated form of gambling which involves the drawing of numbers for a prize.