Assume You Are Reviewing a Graph Depicting Earnings Per Share

question 5

Multiple Choice

Assume you are reviewing a graph depicting earnings per share (EPS) on the vertical axis and earnings before interest (EBI) on the horizontal axis.Data points for both a levered and an unlevered firm are displayed.Given this,which statement accurately describes this graph?

• A)The unlevered firm has a greater reaction to a change in EBI than does the levered firm.
• B)The levered firm consistently has higher EPS than the unlevered firm.
• C)Both the levered and unlevered firms have zero EPS when EBI is zero.
• D)Debt becomes a greater disadvantage to a firm as EBI increases.
• E)When earnings exceed the breakeven point,the levered firm has the higher EPS.

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Definitions:

Sexual Transmitted Diseases

Infections commonly spread by sexual contact, also known as sexually transmitted infections (STIs).

Pregnancy

The state of carrying a developing fetus within the female body, typically lasting around 40 weeks from the last menstrual period to childbirth.

Male Condom

Contraceptive device, usually made of latex, that fits over the male penis.

Spermicidal Jellies

Contraceptive products used to immobilize or kill sperm, designed to be applied inside the vagina to prevent pregnancy.