You are comparing two financial policies. The first is all equity. The second involves the use...
You are comparing two financial policies. The first is all equity. The second involves the use of $2 million of debt. The break-even point between these two policies occurs when the earnings before interest and taxes (EBIT) is $450,000. Given this, it is accurate to say that leverage _____ beneficial to the firm when EBIT is $325,000 and _____ beneficial when EBIT is $625,000.
| a. |
is not; is not |
|
| b. |
is; is |
|
| c. |
is; is not |
|
| d. |
is not; is |
|
| e. |
The answer cannot be determined based on the information provided. |
Homework Answers
Plesae find below the solution.. let me know if you need any clarification..
correct answer is option : d) is not; is
Since break even level of EBIT is 450000. Therefore any level of EBIT below 450000 is not having any leerage benefit but any level above break even EBIT will provide the leverage benefit.
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