The Effect of Financial Leverage Depends on the Operating Earnings

question 4

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 plans is less than debt-equity plans.
• D)Above the indifference or break-even point the increase in EPS for all equity plans is greater than debt-equity plans.
• E)The rate of return on operating assets is unaffected by leverage.

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