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:

Normally Distributed

Describes a statistical distribution where data points are symmetrically distributed around the mean, forming a bell-shaped curve.

Understock Quantity

The amount by which inventory levels fall short of the minimum required to meet demand, leading to potential stockouts.

Acting Independently

Refers to entities or individuals making decisions or taking actions without reliance on or consultation with others, often emphasizing autonomy and self-reliance.

Optimal Quantity

The most efficient amount of a product or service that minimizes costs and maximizes profitability.