Below the break-even EBIT, increased financial leverage will _______ EPS, all else the same. Assume there are no taxes.
A) Increase.
B) Decrease.
C) Not affect.
D) Either increase or decrease.
E) Increase EBIT but decrease.

Question

Quizplus · Accepted Answer

Increased financial leverage below the break-even EBIT level will decrease EPS because the fixed costs of debt increase, reducing earnings available to equity holders when earnings are already low.

Below the Break-Even EBIT, Increased Financial Leverage Will _______ EPS