In an EPS-Operating Income Graphical Relationship,the Slope of the Debt

question 75

Multiple Choice

In an EPS-operating income graphical relationship,the slope of the debt line is steeper than the equity line.The debt line has a negative intercept because:

• A)the break-even point is higher with debt.
• B)a fixed interest charge must be paid even at low earnings.
• C)the amount of interest per share has only a positive effect on the intercept.
• D)the higher the interest rate,the greater the slope.

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Definitions:

Taxable Income

The amount of income subject to taxes, calculated by adjusting gross income for deductions, exemptions, and allowances, according to tax laws.

Deferred Income Tax Asset

A balance sheet item that represents taxes paid or carried forward but not yet realized on the income statement.

Net Operating Loss

The deficit that occurs when a business's expenses exceed its revenues, excluding taxes and certain other expenses, over a fiscal period.

Future Profitability

An estimation or outlook on the capacity of a business to generate earnings in future periods, often considered for investments or strategy planning.