If a Firm Uses Debt Financing (Debt Ratio = 0

question 17

Multiple Choice

If a firm uses debt financing (Debt ratio = 0.40) and sales change from the current level, which of the following statements is CORRECT?

• A) The percentage change in EBIT will equal the percentage change in net income.
• B) Since debt is used, the degree of operating leverage must be greater than 1.
• C) The percentage change in operating income will be less than the percentage change in net income.
• D) The percentage change in operating income (EBIT) resulting from the change in sales will exceed the percentage change in net income.
• E) The percentage change in net income relative to the percentage change in sales (and in EBIT) will not depend on the interest rate paid on the debt.

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Definitions:

Socioeconomic Status

The social standing or class of an individual or group, often measured by education, income, and occupation.

Single-parent Families

households with one parent who is responsible for raising children without the involvement of the other biological parent.

Developmental Problems

Difficulties in physical, emotional, cognitive, or social growth that may affect a person's ability to achieve typical developmental milestones.

Permissive

Characterized by a lenient or liberal attitude, allowing or tolerating behaviors that others might restrict.