When fixed capital costs are incurred by the firm, a change in ____ is magnified into a larger change in earnings per share.
A) earnings before interest and taxes
B) overhead expenses
C) interest charges
D) preferred dividends

Question

Quizplus · Accepted Answer

Fixed capital costs are a long-term investment, and therefore represent a higher portion of a company's total assets. As a result, a change in earnings before interest and taxes (EBIT) will be magnified into a larger change in earnings per share. This is because any changes to EBIT will have a significant impact on the company's overall profitability, which in turn affects the value of its shares.

When Fixed Capital Costs Are Incurred by the Firm, a Change