The Effect of Financial Leverage Depends on the Operating Earnings

question 16

Multiple Choice

The effect of financial leverage depends on the operating earnings of the company.Which of the following is not true?

• A)Below the indifference or break-even point in EBIT the non-levered structure is superior.
• B)Financial leverage increases the slope of the EPS line.
• C)Above the indifference or break-even point the increase in EPS for all equity structures is less than debt-equity structures.
• D)Above the indifference or break-even point the increase in EPS for all equity structures is greater than debt-equity structures.
• E)The rate of return on operating assets is unaffected by leverage.

---

Definitions:

Inherited Disease

A disorder or condition that is passed genetically from parent to child, which may be evident at birth or develop later in life.

Progressive Disability

A condition where an individual experiences an increase in the limitations on their physical or mental abilities over time.

Early Death

Death occurring before the average age of natural mortality in a given population.

Malignant Tumor

A cancerous growth that is invasive and can spread to other parts of the body.