Assume You Are Reviewing a Graph Depicting Earnings Per Share

question 25

Multiple Choice

Assume you are reviewing a graph depicting earnings per share (EPS) on the vertical axis and earnings before interest (EBI) on the horizontal axis.Data points for both a levered and an unlevered firm are displayed.Given this,which statement accurately describes this graph?

• A)The unlevered firm has a greater reaction to a change in EBI than does the levered firm.
• B)The levered firm consistently has higher EPS than the unlevered firm.
• C)Both the levered and unlevered firms have zero EPS when EBI is zero.
• D)Debt becomes a greater disadvantage to a firm as EBI increases.
• E)When earnings exceed the breakeven point,the levered firm has the higher EPS.

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