In an EPS-EBI Graphical Relationship,the Slope of the Debt Ray

question 49

Multiple Choice

In an EPS-EBI graphical relationship,the slope of the debt ray is steeper than the equity ray. The debt ray has a lower intercept because:

• A) more shares are outstanding for the same level of EBI.
• B) the break-even point is higher with debt.
• C) a fixed interest charge must be paid even at low earnings.
• D) the amount of interest per share has only a positive effect on the intercept.
• E) the higher the interest rate the greater the slopE.

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Definitions:

Interdependent

A relationship or condition in which entities rely on each other to have their needs met or to achieve a desired outcome.

Regular Basis

A term indicating that an action or activity occurs at consistent, repeated intervals.

Cognitive Dissonance

Feeling mentally unsettled due to the presence of two or more clashing beliefs, ideas, or values at the same time.

Cohesive

Characteristics of a group or material that hold it together, uniting elements to function or act as a single entity.