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:

Common Stock

A kind of ownership stake in a company that allows holders to participate in voting on company issues and to earn dividends.

Dividends Per Share

The total dividends declared by a company for each share of common stock owned.

Cumulative Preferred Stock

A type of preferred stock that entitles its holder to dividends that, if not paid, accumulate and must be paid out before any dividends can go to common stockholders.

Common Stock

A type of equity security that represents ownership in a corporation, providing voting rights and a share in the company's profits via dividends.