Which One of the Following Statements Is Correct Concerning the Relationship

question 38

Multiple Choice

Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Ignore taxes.

• A) At the break-even point, there is no advantage to debt.
• B) The earnings per share will equal zero when EBIT is zero for a levered firm.
• C) The advantages of leverage are inversely related to the level of EBIT.
• D) The use of leverage at any level of EBIT increases the EPS.
• E) EPS are more sensitive to changes in EBIT when a firm is unlevered.

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Definitions:

Facial Nerve

The seventh cranial nerve that controls the muscles of facial expression, taste sensation on two-thirds of the tongue, and the production of saliva and tears.

Trigeminal Nerve

A cranial nerve responsible for sensory information from the face and motor functions such as biting and chewing.

Pyramidal System

A motor system that carries voluntary movements signals from the brain to the muscles, mainly involving the cerebral cortex and the spinal cord.

Corticospinal Tract

A set of nerve pathways that travel from the cerebral cortex in the brain down the spinal cord, involved in controlling voluntary muscle movements.