a. Discuss the following statement: All else equal, firms with relatively stable sales are able to carry relatively high debt ratios. Is this statement true or false? Why?
b. Why is EBIT generally considered independent of financial leverage? Why might EBIT actually be affected by financial leverage at high debt levels?
c. If a firm goes from zero debt to successively higher levels of debt, why would you expect its stock price to rise first, then hit a peak, and then begin to decline?