EBIT-EPS analysis is used to:
ASet the dividend payout
BCompute payback period
CEvaluate the effect of alternative financing on EPS
DDecide working capital level
Answer & Solution
Correct answer: C. Evaluate the effect of alternative financing on EPS
1. EBIT-EPS analysis tests how EPS responds to financing alternatives at different EBIT levels.
2. Used in capital structure decisions.
3. Indifference Point: EBIT at which EPS is the same for two financing plans.
_Source: ICAI BoS CA Inter Paper 6A, Ch 5 "Financing Decisions — Capital Structure", §3 — EBIT-EPS-MPS_
Related questions
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