(1) The basic limitation of the EBIT-EPS approach to capital structure is ____________.

Select one:

A.

that its disregard for the presence of preferred stock in the capital structure.

B.

that its disregard for the firm's dividend policy.

C.

that it concentrates on the maximization of EPS rather than the maximization of owner's wealth.

D.

that the optimal capital structure is difficult to compute.

(2) As fixed costs increase, ___________ increases.

Select one:

A. degree of operating leverage

B. degree of financial leverage

C. leverage

D. earnings per share