You Are Writing a Comparison of an All-Equity Structure to a Levered

question 53

Multiple Choice

You are writing a comparison of an all-equity structure to a levered capital structure for a firm.It is accurate to state in this comparison that

• A)earnings per share will always be higher in the all-equity structure.
• B)firms will only select the levered structure when individual rates on borrowed funds are lower than corporate rates.
• C)leverage lowers shareholders' returns in bad financial times.
• D)the all-equity firm has a greater advantage the higher the firm's earnings before interest.
• E)leverage improves shareholders' returns regardless of the firm's level of earnings.

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Definitions:

Public Good

A good that is non-excludable and non-rivalrous, meaning it can be consumed by many people without reducing its availability to others.

Utilitarian Justice

An ethical framework that assesses actions based on their consequences, aiming to maximize overall happiness and minimize suffering.

Dollar Worth

The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

After-Tax Distribution

The process of allocating income or assets to various recipients after all applicable taxes have been deducted.