You Have Computed the Break-Even Point Between a Capital Structure

question 219

Multiple Choice

You have computed the break-even point between a capital structure that has no debt and one that has debt. Assume there are no taxes. At the break-even level, the:

• A) Firm is just earning enough to pay for the cost of the debt.
• B) Firm's earnings before interest and taxes are equal to zero.
• C) Earnings per share for the levered option are exactly double those of the unlevered option.
• D) Advantages of leverage exceed the disadvantages of leverage.
• E) Firm has a debt-equity ratio of.50.

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