An EPS-operating income graph,for different debt ratios,shows the:
I.greater risk associated with debt financing,which is evidenced by a greater slope;
II.the break-even point where EPS of two different debt ratios are equal;
III.the minimum earnings needed to pay the debt financing for a given level of debt
A)I only
B)II only
C)III only
D)I,II,and III only

Question

Quizplus · Accepted Answer

The graph of EPS versus operating income for different debt ratios shows all the mentioned variables. 
I. Greater risk associated with debt financing is manifested by the steeper slope of the EPS-operating income relationship as the debt ratio increases. 
II. The break-even point occurs where EPS of two different debt ratios is the same. This point identifies the level of operating income at which a company can make the same EPS, regardless of the debt ratio. 
III. The minimum earnings necessary to pay the debt financing for a given level of debt are located at the intersection of the EPS line for a given level of debt and the horizontal line of fixed charges for that level of debt.

An EPS-Operating Income Graph,for Different Debt Ratios,shows The