Metcalf, Inc

Multiple Choice

Metcalf, Inc. is planning to buy a new machine to begin making one of its component parts internally rather than contracting it out to a supplier. Since this is a major investment, they plan to fund it by issuing additional common stock. Assuming that this change has no initial impact on EBIT, the change should:

A) increase operating leverage and decrease financial leverage.
B) decrease operating leverage and increase financial leverage.
C) increase both operating and financial leverage.
D) decrease both operating and financial leverage.
E) The impact on financial and operating leverage cannot be determined.