you are comparing two possible capital structures for a firm. the first option i

Question

you are comparing two possible capital structures for a firm. the first option is an all-equity firm. The second option involves the use of $3.8 million of debt. The break-even point between these two financing options occurs when the earnings efore interest and taxes (EBIT) are $428,000. Given this, you know that leverage is beneficial to the firm:

A. whenever EBIT is less than $428,000

B. only when EBIT is $428,000

c. Whenever EBIT exceeds $428,000

D. only if the EBIT is decreased by $428,000

E. only if the debt is increased by $428,000

Explanation / Answer

c. Whenever EBIT exceeds $428,000

Now if Debt was used, it will enable firm to reduce the Taxes by deducting Interest payemnt on debt.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.