In an EPS-EBI Graphical Relationship, the Debt Ray and Equity

question 26

Multiple Choice

In an EPS-EBI graphical relationship, the debt ray and equity cross. At this point the equity and debt are:

• A) equivalent with respect to EPS but above and below this point equity is always superior.
• B) at breakeven in EPS but above this point debt increases EPS via leverage and decreases EPS below this point.
• C) equal but away from breakeven equity is better as fewer shares are outstanding.
• D) at breakeven and MM Proposition II states that debt is the better choice.
• E) at breakeven and debt is the better choice below breakeven because small payments can be made.

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