ABC, Inc Is Comparing Two Capital Structures to Determine How to to Best

question 72

Multiple Choice

ABC, Inc. is comparing two capital structures to determine how to best finance the firm's operations. The first option consists of 100% equity financing. The second option is based on a debt-equity ratio
Of ) 40. What should ABC do if expected earnings before interest and taxes (EBIT) are less than the
Break-even level? Assume there are no taxes.

• A) Select the leverage option because the debt-equity ratio is less than .50.
• B) Select the leverage option since the expected EBIT is less than the break-even level.
• C) Select the unlevered option since the debt-equity ratio is less than .50.
• D) Select the unlevered option since the expected EBIT is less than the break-even level.
• E) Cannot be determined from the information provided.

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Anti-poverty programs that lend small amounts of money to poor entrepreneurs.

Entrepreneurs

Individuals who create, organize, and manage a new business venture, taking on financial risks to do so.

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The basic physical and organizational structures needed for the operation of a society or enterprise, such as roads, bridges, water supply, and electric grids.

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Infrastructure and equipment used for the transmission, emission, or reception of signs, signals, writing, images, sounds, or information of any nature by wire, radio, optical, or other electromagnetic systems.