Question
14. ABC Ltd. is considering two capital structures as options to finance its operations. The first option consists of all equity financing. The second option
14. ABC Ltd. is considering two capital structures as options to finance its operations. The first option consists of all equity financing. The second option is based on a debt-equity ratio of 0.3. What should ABC Ltd. do if its expected earnings before interest and taxes (EBIT) are less than the break-even level? Assume there are no taxes. (4 points)
A. Select the leverage option because the debt-equity ratio is less than 0.50
B. Select the leverage option since the expected EBIT is less than the break-even level
C. Select the unlevered option since the debt-equity ratio is less than 0.50
D. Select the unlevered option since the expected EBIT is less than the break-even level
E. Cannot be determined from the information provided
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started