Which of the following statements is most correct?
A)Increasing financial leverage is one way to increase a firm's basic earning power (BEP).
B)Firms with lower fixed costs tend to have greater operating leverage.
C)The debt ratio which maximizes EPS generally exceeds the debt ratio which maximizes share price.
D)Both a and b are correct.
E)Both a and c are correct.

Question

Quizplus · Accepted Answer

The debt ratio that maximizes EPS often exceeds the one that maximizes share price because higher debt can increase EPS but also increases risk, potentially lowering the share price.

Which of the Following Statements Is Most Correct