The Major Shortcoming of the EBIT-EPS Approach to Capital Structure

question 146

Multiple Choice

The major shortcoming of the EBIT-EPS approach to capital structure is that ________.

• A) the technique does not promote the maximization of shareholder wealth
• B) the technique does not consider the cost of capital
• C) the technique only considers leverage-related risk
• D) the technique does not maximize earnings per share

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Definitions:

Common Law

A legal system characterized by judicial decisions that are recognized as binding, forming a body of law developed through court decisions over time.

Checking Account

A bank account that allows depositors to write checks and make withdrawals, often used for daily financial transactions.

Drawer's Account

Refers to the account from which a check is drawn; the account belongs to the drawer (the person who writes the check).

Payee

A payee is a person or organization to whom money is paid or is to be paid.