In the EBIT-EPS approach to capital structure, risk is represented by
A) shifts in the cost of equity capital.
B) shifts in the cost of debt capital.
C) the slope of the capital structure line.
D) shifts in the times-interest-earned ratio.

Question

Quizplus · Accepted Answer

The slope of the capital structure line in the EBIT-EPS approach indicates the level of financial risk, as it reflects the sensitivity of EPS to changes in EBIT due to the use of debt.

In the EBIT-EPS Approach to Capital Structure, Risk Is Represented