Your Company Doesn't Face Any Taxes and Has $250 Million

question 101

Multiple Choice

Your company doesn't face any taxes and has $250 million in assets, currently financed entirely with equity. Equity is worth $8 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities shown as follows:
$$\begin{array} { c c c } \text { State } & \text { Pessimistic } & \text { optimistic } & \\\text { Probability of state } & 0.25 & 0.75 \\\text { Expected EBIT in state } & \$ 10 \text { million } & \$ 50 \text { million } \end{array}$$
The firm is considering switching to a 20 percent debt capital structure, and has determined that they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure?

• A) $1.02
• B) $1.42
• C) $1.82
• D) $2.00

Comprehend the Fair Labor Standards Act's mandates for hourly employees.

Understand the appropriate uses of funds from the petty cash account.

Understand payroll documentation and legal requirements for employee compensation and taxation.

Understand the responsibilities and scope of roles within a physician-owned medical practice.

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