1. A degree of operating leverage of 1.5 times indicates that _____.?
a. ?for every 1 percent change in EBIT there will be a 1.5 percent change in EPS
b. ?for every 1 percent change in sales there will be a 1.5 percent change in EBIT
c. ?for every 1 percent change in interest there will be a 1.5 percent change in EBIT
d. ?for every 1 percent change in sales there will be a 1.5 percent change in EPS
e. ?for every 1 percent change in EPS there will be a 1.5 percent change in sales
2. According to the basic capital structure theory proposed by Modigliani and Miller (MM), when will a firm's value be maximum??
a. ?When it is financed entirely through its retained earnings
b. ?When it is financed 50 percent through equity and 50 percent through its profits
c. ?When it is financed 50 percent through debt and 50 percent through equity
d. ?When it is financed entirely through equity
e. ?When it is financed 100% through debt