In the EBIT-EPS Approach to Capital Structure, Risk Is Represented

question 16

Multiple Choice

In the EBIT-EPS approach to capital structure, risk is represented by

• A) shifts in the times-interest-earned ratio.
• B) the slope of the capital structure line.
• C) shifts in the cost of debt capital.
• D) shifts in the cost of equity capital.

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Definitions:

Cash Discounts

Cash discounts are reductions in the price of goods or services offered to buyers as an incentive for early payment.

Contra-Revenue Account

An account that is deducted from gross revenue to determine net revenue, such as sales returns, allowances, and discounts.

Income Statement

A financial statement that shows a company's financial performance, including revenues, expenses, and profits over a specific period.

Current Liability

Obligations or debts that a company must pay within a year from the date of the balance sheet.