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:

Marx

Karl Marx, a 19th-century philosopher, economist, and revolutionary socialist whose works on the critique of political economy and class struggle have profoundly influenced socialist thought.

Anomie

Durkheim’s term for a state of normlessness that results from a lack of clear goals and may ultimately result in higher suicide rates.

Durkheim

A foundational sociologist known for his work on social cohesion, the division of labor, and the concept of anomie.

Collective Conscience

Durkheim’s concept highlighting the totality of beliefs and sentiments that are common to the average person in a society.