In an EPS-EBIT Graphical Relationship, the Debt Ray and Equity

question 19

Multiple Choice

In an EPS-EBIT graphical relationship, the debt ray and equity cross. At this point the equity and debt are:

• A) equivalent with respect to EPS but above and below this point equity is always superior.
• B) at breakeven in EPS but above this point debt increases EPS via leverage and decreases EPS below this point.
• C) equal but away from breakeven equity is better as fewer shares are outstanding.
• D) at breakeven and MM Proposition II states that debt is the better choice.
• E) at breakeven and debt is the better choice below breakeven because small payments can be made.

---

Definitions:

Emotional Awareness

The ability to recognize and understand one's own feelings and emotions, as well as those of others.

Short-term Memory

A capacity for holding a small amount of information in mind in an active, readily available state for a short period.

Relatively Stable

Relatively Stable refers to a condition or state that does not easily change or fluctuate significantly over time, indicating consistency and steadiness.

Personality

A set of emotional, attitudinal, and behavioral responses of an individual that are characteristic over time and across situations.