[NYCCPA2B]

Hey all, I am in the same boat as everyone here. I am not shocked at this but it is very annoying. The Wiley MCQ is wrong..often.

Question # FINM-0019 is not relaying accurate info. This is annoying who am I trusting here?!

The are claiming that maximizing on Debt Equity results in Maximizing our EPS. In which universe? Someone please, I wish I am wrong than I could go back and study.

"I am simply a disciple of experience"

[NYCaccountant]

From an EPS perspective, it is more beneficial to have more debt than equity because less shares will be outstanding. Sure you have interest expense, but generally speaking, equity (especially common stock) is more expensive than debt because it's more risky. Also, shareholders would receive less of percentage of earnings because the stock would be diluted.

AUD - 99
BEC - 84
FAR - 93
REG - 87

NYC born and raised.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[NYCaccountant]

From an EPS perspective, it is more beneficial to have more debt than equity because less shares will be outstanding. Sure you have interest expense, but generally speaking, equity (especially common stock) is more expensive than debt because it's more risky. Also, shareholders would receive less of percentage of earnings because the stock would be diluted.

AUD - 99
BEC - 84
FAR - 93
REG - 87

NYC born and raised.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[mwsr6]

It's based on leverage. The higher the debt/equity ratio, the more leveraged a company is. This increases volatility and risk, but the leverage can help increase earnings. Obviously, the company will want to generate more earnings than the interest charged to make the EPS go up.

The Wiley question is correct.

Here's a video that might help if it still doesn't make sense:

https://www.investopedia.com/video/play/leverage-ratio/

[mwsr6]

It's based on leverage. The higher the debt/equity ratio, the more leveraged a company is. This increases volatility and risk, but the leverage can help increase earnings. Obviously, the company will want to generate more earnings than the interest charged to make the EPS go up.

The Wiley question is correct.

Here's a video that might help if it still doesn't make sense:

https://www.investopedia.com/video/play/leverage-ratio/

[Author]

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