All of the Following Statements Are Correct Except

question 3

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 some EBIT level, a firm will be indifferent between the two capital structures, inasmuch as they result in the same earnings per share.
• 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.
• E)All of the above statements are correct.

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Definitions:

Systematic Risk

The inherent risk that affects the overall market, not diversified away by holding a broad portfolio.

Bank of Canada

The central bank of Canada, responsible for issuing currency, managing the country's monetary policy, and regulating its financial system.

Interest Rates

The cost of borrowing money or the return on savings, usually expressed as a percentage of the amount borrowed or saved.

Portfolio Beta

A measure of the volatility, or systematic risk, of a portfolio in comparison to the market as a whole, indicating how much the investment’s value is expected to fluctuate.