The EPS/EBIT Indifference Level Represents the Level of EBIT at Which

question 61

True/False

The EPS/EBIT indifference level represents the level of EBIT at which the firm would be indifferent between two different capital structures because they both result in the same level of EPS.

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Definitions:

Double-declining-balance Method

A form of accelerated depreciation where an asset’s book value is decreased at double the rate of its straight-line depreciation.

Straight-line Method

A depreciation method that allocates an equal amount of depreciation expense for an asset over its useful life.

Salvage Value

The estimated residual value of an asset at the end of its useful life, usually considered for depreciation calculations.

Depreciation Method

A systematic approach used to allocate the cost of a tangible asset over its useful life.