In an EPS-Operating Income Graph, Such as Figure 17

question 50

Multiple Choice

In an EPS-operating income graph, such as Figure 17.1, the slope of the line is steeper when the debt ratio is higher.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:

ATC

Average Total Cost is determined by dividing the total production expense by the output quantity.

Perfectly Competitive Firm

A firm that operates in a market where there are many buyers and sellers, the products are homogeneous, and no single buyer or seller can influence the market price.

Marginal Revenue

The additional income generated from selling one more unit of a product is known as marginal revenue.

Marginal Cost

The financial impact of producing an extra unit of a product or service.