All of the Following Statements Are Correct Except

question 118

Multiple Choice

All of the following statements are correct except:

• A) EBIT/EPS analysis allows managers to see how different capital structures affect the earnings and risk levels of their firms.
• B) EBIT/EPS analysis shows the graphical relationship between a firm's operating earnings, or earnings before interest and taxes (EBIT), and earnings per share (EPS).
• C) EBIT/EPS analysis suggests that at no EBIT level, will a firm will be indifferent between the two capital structures.
• D) EBIT/eps analysis shows the ranges of EBIT where a firm may prefer one capital structure over another so that the firm may decide to increase or decrease its financial leverage depending on whether its expected EBIT is above or below the indifference EBIT level.

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Definitions:

Assets

Resources owned by a person or business, which are expected to produce positive economic value.

Transaction Demand

The requirement to possess currency in order to carry out daily financial transactions.

Medium of Exchange

An intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties.

Measure of Value

A function of a medium of exchange that allows it to serve as a common denominator to express the value of goods and services.