All of the Following Statements Are Correct Except

question 3

Multiple Choice

All of the following statements are correct except:

• A)EBIT/EPS analysis allows managers to see how different 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:

Break-Even Point

The level of production or sales at which total revenues are equal to total costs, resulting in no net loss or gain.

Variable Cost

Costs that vary directly with the level of production or output, such as materials and labor, in contrast to fixed costs which remain constant regardless of output.

Total Cost

The total of all costs associated with the creation of goods or services, encompassing both fixed and variable expenses.

Average Variable Cost

Average Variable Cost is the total variable costs (costs that change with the level of output) divided by the quantity of output produced, representing the cost of producing one additional unit of goods or services.