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Identify the situation in which the company X can avail the benefit of trading on equity?
Question

Consider the following details and answer questions:


Identify the situation in which the company X can avail the benefit of trading on equity?

A.

Situation I

B.

Situation II

C.

Both Situation I and Situation II

D.

Neither Situation I nor Situation II

Correct option is B

Trading on Equity refers to increase in profit earned by the equity shareholders due to presence of fixed charges like interest. So, in situation II company can use debt which would help in increasing the EPS for the shareholders.

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