Consider the Following Leverage Scenarios: If Under Certain Circumstances

Multiple Choice

Consider the following leverage scenarios: If under certain circumstances, financial leverage enhances performance measured by ROE and EPS, why does shifting from equity into debt have no effect in this case?

A) The company hasn't repurchased enough shares of stock with borrowed money.
B) The money the company is earning on its capital is exactly what it costs to borrow.
C) ROCE is too high.
D) ROCE is equal to the after tax cost of debt.