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प्रश्न
Under what situation Earning per share of company falls with the increased use of debt?
पर्याय
When company's Return on Investment is equal to cost of debt.
When company's Return on Investment is more than cost of debt.
When company’s Return on Investment is less than cost of debt.
More use of equity than debt.
MCQ
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उत्तर
When company’s Return on Investment is less than cost of debt.
Explanation:
- Earnings per Share (EPS) falls when Return on Investment (ROI) is less than the cost of debt because the company pays more interest than it earns on the funds borrowed.
- This reduces profitability and hence EPS.
If ROI is greater than the cost of debt, the company benefits from financial leverage, and EPS increases.
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