The Effect of Financial Leverage Depends on the Operating Earnings

question 24

Multiple Choice

The effect of financial leverage depends on the operating earnings of the company. Which of the following is not true?

• A) Below the indifference or break-even point in EBIT the non-levered structure is superior.
• B) Financial leverage increases the slope of the EPS line.
• C) Above the indifference or break-even point the increase in EPS for all equity structures is less than debt-equity structures.
• D) Above the indifference or break-even point the increase in EPS for all equity structures is greater than debt-equity structures.
• E) The rate of return on operating assets is unaffected by leveragE.