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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Definitions:

Firm's Profits

The financial gains that a company makes after subtracting all its costs from its total revenues.

Human Capital

Proficiencies, education, and experiences attributed to an individual or a group, appraised concerning their fiscal value or expense to a business entity or a national economy.

Social Processes

Patterns of interaction between individuals and groups that shape society and social change over time.

Political Processes

The methods and actions through which political decisions, policies, and laws are formed, decided, and implemented.