A decrease of debt in the capital structure tends to reduce a firm's EPS when the firm:
A) faces high interest rates.
B) faces strong growth in business conditions.
C) pays taxes.
D) does not reinvest its earnings.

Question

Quizplus · Accepted Answer

A decrease in debt reduces financial leverage, which can lower EPS if the firm is experiencing strong growth, as it may miss out on the benefits of leveraging debt to finance growth opportunities.

A Decrease of Debt in the Capital Structure Tends to Reduce