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Draw a graph with EPS on the vertical axis and earnings before interest on the horizontal axis.Assume there are no taxes.Draw lines depicting a levered and an unlevered firm.Identify the point where the firm is indifferent to its capital structure and also the area that represents the advantage of debt.
Earnings Retention Ratio
The portion of a company's profits that is reinvested in the business rather than distributed to shareholders as dividends.
Market Capitalization Rate
The expected return on an investment in the market, derived from the collective appraisal of all investors' expectations of future market performance.
Present Value of Growth Opportunities
A valuation method that estimates the current worth of a company's future investment opportunities, considering the time value of money.
ROE
Return on Equity, a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.
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