When comparing levered vs. unlevered capital structures, leverage works to increase EPS for high levels of operating income because interest payments on the debt
A)vary with EBIT levels.
B)stay fixed, leaving less income to be distributed over fewer shares.
C)stay fixed, leaving less income to be distributed over more shares.
D)stay fixed, leaving more income to be distributed over fewer shares.

Question

Quizplus · Accepted Answer

Leverage increases EPS for high levels of operating income because interest payments on the debt remain fixed, which means that as operating income increases, there is more income available to be distributed over a constant number of shares, thus increasing EPS.

When Comparing Levered Vs