When Comparing Levered Versus Unlevered Capital Structures,leverage Works to Increase

question 65

Multiple Choice

When comparing levered versus unlevered capital structures,leverage works to increase EPS for high levels of EBIT because interest payments on the debt

• A)increase as EBIT increases.
• B)stay fixed,leaving more income to be distributed over fewer shares.
• C)stay fixed,leaving less income to be distributed over fewer shares.
• D)stay fixed,leaving less income to be distributed over more shares.
• E)decrease as EBIT increases.

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Definitions:

Intra-Entity Transactions

Transactions that occur between entities within the same parent company, which may need to be eliminated in consolidated financial statements.

Straight-Line Deprecation

A method of calculating the depreciation of an asset, where the cost is evenly spread over its useful life.

Intra-Entity Transfer

Refers to the movement of goods, services, or funds between different departments or units of the same organization.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against an asset, reflecting its reduction in value over time.