Why can debt raise EPS compared with issuing equity?
ADebt needs no repayment
BDebt carries no cost
CLenders share profits
DInterest is tax-deductible
Answer & Solution
Correct answer: D. Interest is tax-deductible
Deductible interest lowers tax, so more operating income reaches investors and EPS rises.
Keep practising Capital Structure Basics
Browse all Capital Structure Basics questions for CA Inter, or explore more Financial Management topics.
Related questions
Pecking order theory says firms first prefer to finance investments withMiller said that, if trade-off theory held, firms ought to carryFrank and Goyal found the pecking order fails mainly for which firms?In which year was Modigliani awarded the Nobel Prize in Economics?MM's operational justification of irrelevance relies onUnder MM without taxes, unlevered Firm U and levered Firm L havePerpetual after-tax income of 144 at an 8% rate gives a firm value of?A 1,000 investment returns 1,100 and income is taxed at 20%. After-tax return?