Adding Debt Decreases EBIT and Net Income Because of Increased

question 139

True/False

Adding debt decreases EBIT and Net Income because of increased interest charges. It also increases financial risk which tends to make risk averse investors sell their stock. Therefore, more leverage generally reduces ROE and EPS and always reduces stock price.

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Definitions:

Aggregate Demand

The total demand for all goods and services within an economy at a given overall price level and in a given time period.

Pollution Tax

A tax imposed by governments on emissions generated by businesses and industries, aimed at reducing environmental damage.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Pollution Tax

A tax levied on activities that produce pollution in order to incentivize the reduction of environmental externalities.