When does the earnings per share (EPS) rise with higher debt?

(a) When the rate of return on investment is higher than the rate of interest.

(b) When the rate of interest is more than the rate of return.

(c) None of the above.

(d) When the rate of return on investment is lower than the rate of interest.

Answer (a) When the rate of return on investment is higher than the rate of interest.

Explanation: Though a company may issue earnings per share to meet its immediate requirement of funds, this can happen only when the stock market index is rising. In this case, the rate of return on investments is higher than the rate of interest.

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