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:

Disadvantages

Negative aspects or conditions that impede success or cause inefficiencies.

Aging the Data

Involves adjusting historical data for factors such as inflation or changes in market rates to make it relevant and applicable to current conditions.

Market Increases

Adjustments in the price levels of goods and services in a market, often influenced by factors such as supply and demand, inflation, and economic policies.

Compensation Surveys

Research conducted to gather and analyze competitive salary data, used by organizations to benchmark their compensation packages.