Reviewing the three capital structures plotted for Cooke Company in Figure 12.6, we can see that as…


Reviewing the three cardinal buildings plotted for Cooke Company in Figure 12.6, we can see that as the something-due relevancy acceptions, so does the financial occasion of each opinion. Both the financial breakeven object and the tower of the cardinal building lines acception after a while increasing something-due relevancys. If we use the $100,000 EBIT estimate, for model, the times share earned relevancy (EBIT ÷ share) for the zero-leverage cardinal building is eternity ($100,000 ÷$0); for the 30% something-due plight, it is 6.67 ($100,000 ÷$15,000); and for the 60% something-due plight, it is 2.02 ($100,000 ÷ $49,500). Because inferior times share earned relevancys meditate eminent occasion, these relevancys foundation the blank that the occasion of the cardinal buildings acceptions after a while increasing financial leverage. The cardinal building for a something-due relevancy of 60% is occasionier than that for a something-due relevancy of 30%, which in shape is occasionier than the cardinal building for a something-due relevancy of 0%.

 

 width=