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  3. when a company issues debt, uses the proceeds to r

When a company issues debt, uses the proceeds to repurchase equity, and replaces old debt,...

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Question

Accounting

When a company issues debt, uses the proceeds to repurchase equity, and replaces old debt, which ONE of the following statements is FALSE?

A.

the market value Debt Ratio always rises
B.

Market Capitalization always decreases
C.

the Degree of Financial Leverage always rises
D.

Times Interest Earned always rises

The EPS Point of Indifference between high Debt Ratio Capital Structure A and low Debt Ratio Capital Structure B is EBIT = $100,000. If EBIT is greater than $100,000 which ONE of thefollowing statements is true?

A.

they will always have the same EPS since they are alternative capital structures for the same company
B.

we don't know which one will have higher EPS
C.

A will have higher EPS
D.

B will have higher EPS

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