Below the break-even EBIT, increased ﬁnancial leverage will _______ EPS, all else the same. Assume there are no taxes.

Name: Below the break-even EBIT, increased ﬁnancial leverage will _______ EPS, all else the same. Assume there are no taxes.
Brand: Quizplus
Rating: 4.9 (39 reviews)

Question

Quizplus · Accepted Answer

Increased financial leverage will increase interest expense, which will decrease net income and therefore decrease EPS. This is especially true below the break-even EBIT point, as there is not enough operating income to cover the fixed interest expense.

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