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Home Questions RMXMAZY9M9
Target Exam

CUET

Subject

Business Studies

Chapter

Financial Management

Question:
Does EPS always rise with increase in debt?
Options:
Yes, EPS always rises with increase in debt
No, EPS never rises with increase in debt
No, EPS does not always rise with increase in debt, it is possible only when ROI < Cost of debt
No, EPS does not always rise with increase in debt, it is possible only when ROI > Cost of debt
Correct Answer:
No, EPS does not always rise with increase in debt, it is possible only when ROI > Cost of debt
Explanation:
No. The financial leverage dos not always increase EPS. Reason: When the company cannot earn greater profit than the value of debt, its EPS will actually decrease with increase in the financial leverage.

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