Question

According to the​ Break-Even EBIT​ analysis, shareholders are​ ____ off with debt when EBIT is​ _____ the​ Break-Even EBIT level. A. ​worse; above B. ​better; above C. ​better; below D. ​better; equal to

Answer 1

Answer:

Answer B.

Explanation:

EBIT break even point is a situation when company does not make a profit or has loss. It is a point where earnings per share are equal to zero. It is the level of ebit equal to fixed costs for the company, like interest on the debt. If this break even point increases, this leads to the increase of financial risk. However, increase of ebit above break even point leads to net income calculated as EBIT*(1-interest expense)*(1-tax rate)-preferred dividends being higher.