If Debt Financing Is Used, Which of the Following Is

question 24

Multiple Choice

If debt financing is used, which of the following is CORRECT?

• A) The percentage change in net operating income will be greater than a given percentage change in net income.
• B) The percentage change in net operating income will be equal to a
• Given percentage change in net income.
• C) The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate
• Charged on debt.
• D) The percentage change in net income will be greater than the
• Percentage change in net operating income.
• E) The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.

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Definitions:

Basis

In finance, basis refers to the difference between the spot price of an asset and its future price, or it can signify the foundation or underlying principle for something.

Risk-free Interest Rate

The risk-free interest rate is the return on investment with no risk of financial loss, typically represented by the yields of government bonds of stable countries.

Gold Futures

Contracts for the future delivery of gold at a specified price, used for hedging and investing purposes.

Arbitrage Profit

The profit made from buying and selling equivalent financial instruments or capitalizing on price differences in different markets to generate a risk-free return.