In an EPS-Operating Income Graphical Relationship, the Slope of the Debt

question 15

Multiple Choice

In an EPS-Operating Income graphical relationship, the slope of the debt line is steeper than the equity line. The debt line has a negative value for intercept because:

• A) The break-even point is higher with debt
• B) A fixed interest charge must be paid even at low earnings
• C) The amount of interest per share has only a positive effect on the intercept
• D) The higher the interest rate the greater the slope