Which One of the Following Statements Is Correct Concerning the Relationship

question 58

Multiple Choice

Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Assume there are no taxes.

• A)At the break-even point, there is no advantage to debt.
• B)The earnings per share will equal zero when EBIT is zero for a levered firm.
• C)The advantages of leverage are inversely related to the level of EBIT.
• D)The use of leverage at any level of EBIT increases the EPS.
• E)EPS are more sensitive to changes in EBIT when a firm is unlevered.

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Definitions:

Gas Centrifuges

Devices used in the uranium enrichment process that rapidly spin gas to separate isotopes, particularly to increase the percentage of uranium-235 for use in nuclear reactors or weapons.

Uranium Isotope

Variants of the element uranium that contain the same number of protons but different numbers of neutrons in their nuclei, with different isotopes having different nuclear properties.

Radioactive Material

Substances that emit radiation as a result of the spontaneous disintegration of atomic nuclei.

Strip Mines

Large, open-pit mines where layers of soil and rock are removed to access underlying minerals.