Which One of the Following Statements Is Correct Concerning the Relationship

question 58

Multiple Choice

Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Assume there are no taxes.

• A)At the break-even point, there is no advantage to debt.
• B)The earnings per share will equal zero when EBIT is zero for a levered firm.
• C)The advantages of leverage are inversely related to the level of EBIT.
• D)The use of leverage at any level of EBIT increases the EPS.
• E)EPS are more sensitive to changes in EBIT when a firm is unlevered.

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Definitions:

Outstanding Balance

The amount of money owed that remains unpaid.

Payment

The act of transferring money or consideration from one party to another in exchange for goods, services, or to fulfill a legal obligation.

Invoice

A document issued by a seller to a buyer, outlining the quantities and costs of goods or services provided.

EOM

End of Month, a term often used in business and finance to denote activities, reports, or payments that are due or completed at the end of each calendar month.