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

question 36

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:
$$\begin{array} { c c c } \text { State } & \text { Pessimistic } & \text { optimistic } & \\\text { Probability of state } & 0.42 & 0.58 \\\text { Expected EBIT in state } & \$ 5 \text { million } & \$ 15 \text { million } \end{array}$$
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) $3.19
• B) $3.94
• C) $4.41
• D) $5.67

Recognize the innate biological responses present from birth and their importance in early development.

Grasp the stages and significant milestones of prenatal development.

Identify the characteristics and challenges of each life stage from infancy to late adulthood as described in developmental theories.

Understand key developmental theories including those of Piaget, Kohlberg, Vygotsky, Erikson, and others about cognitive, moral, and psychosocial development.

---

Definitions:

Internal Control

Processes and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Cost Of Goods Sold

An expense measured as the direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Work In Process Inventory

Items that are currently under production but have not yet reached completion.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate indirect costs to products or services based on a chosen activity base such as labor hours or machine hours.