Which of the following is NOT accurate regarding ﬁnancial leverage?
A) Whenever a ﬁrm's debt increases faster than its equity, ﬁnancial leverage increases.
B) Leverage is most beneﬁcial when EBIT is relatively high.
C) Investors can undo the effects of the ﬁrm's capital structure by using homemade leverage.
D) Increasing ﬁnancial leverage will always increase the EPS for stockholders.
E) The level of ﬁnancial leverage that produces the highest ﬁrm value is the one most beneﬁcial to stockholders.

Question

Quizplus · Accepted Answer

Increasing financial leverage does not always guarantee an increase in EPS for stockholders. It is possible that the increase in interest expenses due to higher debt levels can offset the boost in earnings from increased leverage, leading to a decrease in EPS.

Which of the Following Is NOT Accurate Regarding ﬁNancial Leverage