If Debt Financing Is Used,which of the Following Is Correct

question 75

Multiple Choice

If debt financing is used,which of the following is correct?

• A)The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.
• B)The percentage change in net operating income will be equal to a given percentage change in net income.
• C)The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.
• D)The percentage change in net income will be greater than the percentage change in net operating income.

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Definitions:

Depreciation Expense

The allocated amount of an asset's cost that is expensed over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Historical Cost

The original monetary value of an asset or transaction, without adjusting for inflation or market value changes.

Lessees' Balance Sheet

The financial statement that reflects the rights and obligations arising from leasing agreements, including both right-of-use assets and lease liabilities, from the perspective of the lessee.

Capital Leases

A lease that transfers substantially all risks and rewards of ownership of the asset to the lessee, effectively treated as a purchase.