The major shortcoming of the EBIT-EPS approach to capital structure is that
A) the technique does not consider the cost of capital.
B) the technique does not promote the maximization of shareholder wealth.
C) the technique only considers leverage-related risk.
D) the technique does not maximize earnings per share.

Question

Quizplus · Accepted Answer

The EBIT-EPS approach focuses on maximizing earnings per share, but it does not necessarily align with the goal of maximizing shareholder wealth, which considers the cost of capital and overall firm value.

The Major Shortcoming of the EBIT-EPS Approach to Capital Structure