After Completing an EPS/EBIT Analysis, What Conclusions Would You Make

question 92

Multiple Choice

After completing an EPS/EBIT analysis, what conclusions would you make if the debt line is above the stock line throughout the range of EBIT on the graph?

• A) Debt appears to be the best financing alternative.
• B) Stock would be the best financing alternative.
• C) A combination of debt and stock is probably the best financial alternative.
• D) Dividends must be considered before conclusions can be made.
• E) The company should be privately owned.

---

Definitions:

Direct Labour

The wages of workers or employees who are directly involved in the production of goods or the delivery of services.

Variable Overhead Efficiency Variance

The difference between the actual variable overhead incurred and the expected (standard) variable overhead based on the efficient usage of manufacturing resources.

Direct Material Used

The raw materials that are directly included in the finished product, easily traceable to specific goods or batches of goods.

Variable Manuf. Overhead

Expenses associated with manufacturing that vary directly with the level of production output, such as materials and utilities.