You have computed the break-even point between a capital structure that has no debt and one that has debt. Assume there are no taxes. At the break-even level, the:
A) Firm is just earning enough to pay for the cost of the debt.
B) Firm's earnings before interest and taxes are equal to zero.
C) Earnings per share for the levered option are exactly double those of the unlevered option.
D) Advantages of leverage exceed the disadvantages of leverage.
E) Firm has a debt-equity ratio of.50.

Question

Quizplus · Accepted Answer

At the break-even level, the firm is just earning enough to cover the cost of the debt, meaning it can pay the interest on its debt without either gaining or losing money as a result of the leverage.

You Have Computed the Break-Even Point Between a Capital Structure