The Basic Shortcoming of the EBIT-EPS Approach to Capital Structure

question 9

Multiple Choice

The basic shortcoming of the EBIT-EPS approach to capital structure is

• A) its disregard for the firm's dividend policy.
• B) that the optimal capital structure is difficult to compute.
• C) its disregard for the presence of preferred stock in the capital structure.
• D) that it concentrates on the maximization of EPS rather than the maximization of owner's wealth.

Identify how the structure of business ownership (corporations, partnerships, proprietorships) affects tax liabilities and reporting.

Understand the concept of excess burden and how it affects the efficiency of tax policies.

Analyze the impact of specific taxes on market outcomes, including price levels and the distribution of tax burdens.

Understand the implications of tax elasticity and the economic burdens of taxes on specific goods and services.

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