You Are Comparing Two Possible Capital Structures for a Firm

Multiple Choice

You are comparing two possible capital structures for a firm.The first option is an all-equity firm.The second option involves the use of $3.8 million of debt.The break-even point between these two financing options occurs when the earnings before interest and taxes (EBIT) are $428,000.Given this, you know that leverage is beneficial to the firm:

A) whenever EBIT is less than $428,000.
B) only when EBIT is $428,000.
C) whenever EBIT exceeds $428,000.
D) only if the debt is decreased by $428,000.
E) only if the debt is increased by $428,000.