The EBIT-EPS approach to capital structure proposes that an optimal capital structure be selected which ________.
A) maximizes the weighted average cost of capital
B) minimizes the cost of debt
C) maximizes the EPS
D) minimizes dividends

Question

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The EBIT-EPS approach to capital structure proposes that an optimal capital structure be selected which maximizes the EPS. This is achieved by selecting a combination of debt and equity that results in a higher earnings per share (EPS) for shareholders. The approach takes into consideration the effect of leverage on earnings before interest and taxes (EBIT), and how it can impact EPS. Maximizing EPS indicates the strong financial position of the company, which is good for the shareholders.

The EBIT-EPS Approach to Capital Structure Proposes That an Optimal