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Which relationship produces Favourable Financial Leverage and an increase in EPS as debt increases?

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Question

Which relationship produces Favourable Financial Leverage and an increase in EPS as debt increases?

Options

  • EPS decreases as debt increases

  • RoI < Cost of Debt

  • RoI > Cost of Debt

  • Interest and repayment of principal are compulsory

MCQ
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Solution

Favourable Financial Leverage occurs when RoI exceeds the Cost of Debt. Under this relationship, EPS increases as debt increases.

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