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

question 6

Multiple Choice

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

• A) the technique does not consider the cost of capital.
• B) the technique does not promote the maximization of shareholder wealth.
• C) the technique only considers leverage-related risk.
• D) the technique does not maximize earnings per share.

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Definitions:

Labour

The effort exerted by humans, encompassing both physical and mental activities, in the creation of goods and services.

Cost Structure

The composition of a company's costs, including fixed and variable costs, that determines how it spends money on its operations.

Minimum Quantities

The smallest amount or number of items that must be purchased, produced, or kept in inventory.

Cost Structure

The composition of a company's costs, including fixed and variable costs, and how they affect overall expenditure.