Assume a Portion of a Firm's Long-Term Funds Includes Either

Multiple Choice

Assume a portion of a firm's long-term funds includes either debt or preferred stock.Which of the following statements is correct?

A) The firm must possess operating leverage,which means that a change in net income will result in a greater percentage change in earnings before interest and taxes (EBIT) .
B) The firm has financial leverage,which means that a change in sales will result in a greater percentage change in EBIT.
C) The firm has financial leverage,which means that a change in EBIT will result in a greater percentage change in earnings per share (EPS) .
D) The firm doesn't have leverage,because leverage is created through the use of common equity financing only.
E) None of the above is a correct answer.