All of the Following Statements Are Correct Except

question 113

Multiple Choice

All of the following statements are correct except:

• A)EBIT/EPS analysis allows managers to see how the same capital structures affect the earnings and risk levels of their firms.
• B)EBIT/EPS analysis shows the graphical relationship between a firm's operating earnings, or earnings before interest and taxes (EBIT), and earnings per share (EPS).
• C)EBIT/EPS analysis suggests that at some EBIT level, a firm will be indifferent between the two capital structures, inasmuch as they result in the same earnings per share.
• D)EBIT/eps analysis shows the ranges of EBIT where a firm may prefer one capital structure over another so that the firm may decide to increase or decrease its financial leverage depending on whether its expected EBIT is above or below the indifference EBIT level.
• E)All of the above statements are correct.

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Definitions:

Fixed Cost

Costs that remain constant regardless of production or sales volumes, including expenditures like rent, salaries, and insurance.

Variations in Volume

Changes in the amount of output produced or sold, affecting costs and revenue.

Relevant Range

The range of operational activity within which the assumptions about fixed and variable cost behaviors hold true for a specific business.

Curvilinear Cost

A cost structure where costs increase at a non-constant rate as volume increases, depicting a curve on a graph.