A firm's earnings per share is not impacted by its financing plan at the point when
A) debt is equal to equity.
B) return on assets equals return on equity.
C) the cost of borrowed funds equals the return on equity.
D) the cost of borrowed funds equals the return on assets.

Question

Quizplus · Accepted Answer

When the cost of borrowed funds equals the return on assets, the earnings per share is not impacted by the firm's financing plan because the cost of financing (interest expense) directly offsets the return generated by those borrowed funds, leaving no net impact on earnings.

A Firm's Earnings Per Share Is Not Impacted by Its