An analytical technique called can be used to help determine when debt financing is advantageous and when equity financing is advantageous.
A)DFL-EPS analysis
B)EBIT-EPS analysis
C)DCL-EPS analysis
D)DOL-EBIT analysis

Question

Quizplus · Accepted Answer

The EBIT-EPS analysis (Earnings Before Interest and Taxes - Earnings Per Share) helps determine the level of EBIT required to maintain a certain EPS when financing is done through either debt or equity. This analysis can help determine when debt financing is advantageous (when the cost of debt is lower than the required EBIT to maintain EPS) and when equity financing is advantageous (when the cost of equity is lower than the required EBIT to maintain EPS). Therefore, B is the best choice.

An Analytical Technique Called Can Be Used to Help Determine