In an EPS-EBI Graphical Relationship, the Slope of the Debt

question 29

Multiple Choice

In an EPS-EBI graphical relationship, the slope of the debt ray is steeper than the equity ray.The debt ray has a lower intercept because:

• A)more shares are outstanding for the same level of EBI.
• B)the break-even point is higher with debt.
• C)a fixed interest charge must be paid even at low earnings.
• D)the amount of interest per share has only a positive effect on the intercept.
• E)the higher the interest rate the greater the slope.

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