In an EPS-EBI Graphical Relationship,the Debt Line and the No

question 29

Multiple Choice

In an EPS-EBI graphical relationship,the debt line and the no debt line intersect.Which of these are true at the intersection point?
I.The advantages of debt outweigh the disadvantages of debt.
II.The aftertax earnings of both capital structures are equal.
III.The earnings per share for both capital structures are equal.
IV.There is no advantage or disadvantage to debt.

• A)I and III only
• B)II and IV only
• C)III and IV only
• D)I,II,and III only
• E)II,III,and IV only

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Definitions:

Agent Liability

Refers to the legal responsibility of an agent to their principal, including obligations and potential for repercussions if the agent acts outside their authority or against the interests of the principal.

Principal

In law, the person who authorizes an agent to act on their behalf; in finance, the original amount of money invested or loaned.

Vicarious Liability

The liability or responsibility imposed on a person, a party, or an organization for damages caused by another; most commonly used in relation to employment, with the employer held vicariously liable for damages caused by its employees.

Principal-Employer

The party in a contractual relationship who has the right to control the work of the employee or agent and is responsible for their actions.