Amalgamated Mining,Inc

question 117

Multiple Choice

Amalgamated Mining,Inc.has very high operating leverage due to the capital intensive nature of the steel business.The firm's CEO is concerned about the variability in the firm's EPS if sales should drop,and decides to take action.Which of the following will reduce the variability in the firm's EPS for a given change in sales?

• A) The CEO may increase the firm's financial leverage and hence reduce the variability by using non-shareholder money to support the business.
• B) The CEO may decrease the firm's financial leverage, thus lowering the firm's total leverage.
• C) The CEO may increase the firm's total leverage by raising money from the sale of common stock.
• D) The CEO may issue more corporate bonds and use the proceeds to pay off short-term liabilities.

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