HiLo, Inc, Doesn't Face Any Taxes and Has $100 Million in in Assets

question 6

Multiple Choice

HiLo, Inc., doesn't face any taxes and has $100 million in assets, currently financed entirely with equity. Equity is worth $50 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:
$$\begin{array} { c c c } \text { State } & \text { Pessimistic } & \text { optimistic } & \\\text { Probability of state } & 0.33 & 0.67 \\\text { Expected EBIT in state } & \$ 8\text { million } & \$ 15 \text { million } \end{array}$$
The firm is considering switching to a 40 percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt. What will be the level of expected EPS if they switch to the proposed capital structure?

• A) $7.24
• B) $6.94
• C) $5.59
• D) $5.67

Grasp the concept and importance of management development programs for various managerial levels.

Recognize the importance of the 360-degree feedback mechanism in performance appraisal.

Identify the goals and impacts of employee orientation and socialization processes within organizations.

Comprehend various human resource management functions such as training, mentoring, and coaching.

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Definitions:

Reusable Glass Bottles

Containers made of glass designed to be used multiple times for storing beverages or other liquids, promoting sustainability by reducing waste.

Soft Drink

A non-alcoholic beverage that is typically carbonated and flavored with various sweeteners and other ingredients.

Beer Containers

Packaging materials used to hold beer, typically including bottles, cans, and kegs.

Recycling

The process of converting waste materials into new products to prevent waste of potentially useful materials, reduce consumption of fresh raw materials, and lower greenhouse gas emissions.