EPS will always increase
EPS may increase
EPS will never increase
None of the above
Answer is Right!
Answer is Wrong!
The correct answer is: B. EPS may increase.
EPS is calculated by dividing EBIT by the number of shares outstanding. If EBIT is constant, then increasing the debt level will increase the number of shares outstanding, which will decrease EPS. However, if EBIT increases as a result of the increased debt level, then EPS may increase.
Here is a more detailed explanation of each option:
- Option A: EPS will always increase. This is not necessarily true. As explained above, increasing the debt level will increase the number of shares outstanding, which will decrease EPS. However, if EBIT increases as a result of the increased debt level, then EPS may increase.
- Option B: EPS may increase. This is the correct answer. As explained above, increasing the debt level will increase the number of shares outstanding, which will decrease EPS. However, if EBIT increases as a result of the increased debt level, then EPS may increase.
- Option C: EPS will never increase. This is not necessarily true. As explained above, if EBIT increases as a result of the increased debt level, then EPS may increase.
- Option D: None of the above. This is not the correct answer. As explained above, EPS may increase if EBIT increases as a result of the increased debt level.