Assume a portion of a firm's long-term funds includes either debt or preference shares.Which of the following statements is correct?
A) The firm must possess operating leverage, which means that a change in net income will result in a greater percentage change in earnings before interest and taxes (EBIT) .
B) The firm has financial leverage, which means that a change in sales will result in a greater percentage change in EBIT.
C) The firm has financial leverage, which means that a change in EBIT will result in a greater percentage change in earnings per share (EPS) .
D) The firm doesn't have leverage, because leverage is created through the use of ordinary equity financing only.
E) None of the above is a correct answer.
Correct Answer:
Verified
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