Assume you are reviewing a graph depicting earnings per share (EPS) on the vertical axis and earnings before interest (EBI) on the horizontal axis. Data points for both a levered and an unlevered firm are displayed. Given this, which statement accurately describes this graph?

Multiple Choice

• Debt becomes a greater disadvantage to a firm as EBI increases.
• The levered firm consistently has higher EPS than the unlevered firm.
• The unlevered firm has a greater reaction to a change in EBI than does the levered firm.
• When earnings exceed the breakeven point, the levered firm has the higher EPS.
• Both the levered and unlevered firms have zero EPS when EBI is zero.