Other Things Held Constant,which of the Following Statements Is Correct

question 121

Multiple Choice

Other things held constant,which of the following statements is correct if a firm currently is operating at its financial breakeven point?

• A) EBIT must be greater than zero.
• B) EBIT would equal zero if the firm is financed only with common stock (i.e. ,there is no debt or preferred stock).
• C) EBIT would equal zero,hence EPS would be less than zero,if the firm has preferred stock but no debt.
• D) EPS would equal zero only if the firm is financed with some amount of debt.
• E) The firm would not be considered to have much financial risk,especially when compared to a firm that operates well above its financial breakeven point.

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Definitions:

Income Summary

An account used in closing entries to collect the revenue and expenses for a specific accounting period before transferring the net result to capital.

Expenses

Costs incurred in the process of earning revenues, typically categorized as operating or non-operating.

Owner's Drawings

Withdrawals made by the owner of a sole proprietorship or partnership from the business for personal use.

Revenues

The total income generated from the sale of goods or services related to a company's primary operations.