When Using an EPS-EBIT Chart to Evaluate a Pure Debt

question 113

Multiple Choice

When using an EPS-EBIT chart to evaluate a pure debt financing and pure equity financing plan, the debt financing plan line will have

• A) a steeper slope than the equity financing plan line.
• B) a slower rate of change as EBIT increases.
• C) a downward slope.
• D) the same slope as the equity plan, but a higher intercept.

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Definitions:

Sales Commissions

Payments made to salespersons or employees based on the sales they generate, often calculated as a percentage of the sales volume.

Sales Volume

The quantity of units of merchandise sold or services rendered over a specific period.

Fixed Maintenance Cost

Costs that do not fluctuate with the level of production or sales, such as salaries for maintenance staff or contracts for equipment service, remaining constant over a period.

Machine-Hours

A unit of measure representing the operation of machinery for one hour, often used in manufacturing and production cost analysis.