When Using an EPS-EBIT Chart to Evaluate a Pure Debt

question 94

Multiple Choice

When using an EPS-EBIT chart to evaluate a pure debt financing and pure equity financing plan,

• A) the debt financing plan line will graph with a steeper slope than the equity financing plan line.
• B) the debt financing plan line will have a lower level of EBIT at EPS = 0.
• C) the line of the two financing plans will intersect on the EBIT axis.
• D) the slope of the equity financing plan line will be steeper than the debt financing plan line below the intersection of the two lines.

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Definitions:

Confirmed

Verified or ratified; often used in legal and financial contexts to indicate that an action or transaction has been officially approved.

Feasibility

The state or level of being easily or conveniently done, or the practicality of a proposed plan or method.

Non-bankruptcy Compromises

Agreements made to resolve debt without resorting to bankruptcy proceedings, often involving negotiation between debtor and creditors.

Compositions

Agreements between a debtor and their creditors where the creditors agree to accept a portion of what's owed in full satisfaction of their claims.