1. Explain what this statement means: "One part of leverage affects both EBIT and EPS. The other type affects only EPS."
2. Explain why the following statement is true: "All else the same, firms with relatively stable sales are able to carry relatively high debt/assets ratios."
3. If a firm went from zero debt to successively higher levels of debt, why would you expect its stock price to first rise, then hit a peak, and then begin to decline?
4. Is the debt level that maximizes a firm's expected EPS the same as the one that maximizes its stock price? Explain.
5. Explain how a firm might shift its capital structure so as to change its weighted average cost of capital (WACC). What would be the impact on the value of the firm?

Answer rating: 100% (QA)

1 One part of leverage affects both EBIT and EPS The other type affects only EPS This statement refers to the two types of leverage operating leverage ... View the full answer