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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