Question

When comparing levered versus unlevered capital structures, leverage works to increase EPS for high levels of EBIT because interest payments on the debt: A. vary with EBIT levels. B. stay fixed, leaving less income to be distributed over fewer shares. C. stay fixed, leaving more income to be distributed over fewer shares. D. stay fixed, leaving less income to be distributed over more shares.

Answer 1

C. Stay fixed, leaving more income to be distributed over fewer shares.

Step-by-step explanation:

Levered cash flow is of interest to investors because it indicates how much cash a business has to expand.

These capital structures are said to appear on balance sheet.

The difference between the levered and unlevered free cash flow is also an important indicator. The difference shows how many financial obligations the business has and if the business is overextended or operating with a healthy amount of debt. It is possible for a business to have a negative levered cash flow if its expenses exceed its earnings.