You Have Computed the Break-Even Point Between a Levered and an Unlevered

question 35

Multiple Choice

You have computed the break-even point between a levered and an unlevered capital structure. Ignore taxes. At the break-even level, the:

• A) company is earning just enough to pay for the cost of the debt.
• B) company'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) company has a debt-equity ratio of .50.

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Asset

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Financial Assets

Assets such as stocks, bonds, bank deposits, or any other instrument that derives value because of a contractual right or ownership claim.

Future Cash Flows

The estimated amount of money to be received or paid out over a specified future period by an investment or business operation.