The basic shortcoming of the EBIT-EPS approach to capital structure is ________.
A) that the optimal capital structure is difficult to compute
B) its disregard for the presence of preferred stock in the capital structure
C) its disregard for the firm's dividend policy
D) that it concentrates on the maximization of EPS rather than the maximization of owner's wealth

Question

Quizplus · Accepted Answer

The EBIT-EPS approach focuses on maximizing earnings per share, which does not necessarily align with maximizing shareholder wealth, as it ignores risk and other factors affecting shareholder value.

The Basic Shortcoming of the EBIT-EPS Approach to Capital Structure