Question
When conducting an EPS-EBIT chart for UA, if the resulting EPS for equity financing is $0.10 and for debt is $0.10 considering a pessimistically forecasted
When conducting an EPS-EBIT chart for UA, if the resulting EPS for equity financing is $0.10 and for debt is $0.10 considering a pessimistically forecasted year, and $0.16 and $0.17 during an optimistically forecasted year respectively, what conclusion could be made?
a) The EPS/EBIT analysis is not useful considering the parameters presented.
b) Debt financing is the most attractive method in all economic environments regardless of the debt level of the firm.
c) Equity tends to be the best alternative when EPS is less than $0.50.
d) Since there is not much spread between debt and equity EPS options, the firm is likely not borrowing a significant level of capital.
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