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

question 93

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 standard deviation in EPS if they switch to the proposed capital structure?

• A) $4.12
• B) $14.57
• C) $15.82
• D) $15.09

Analyze the impact of inflation on currency value and exchange rates.

Explore the role of economic conditions and policies in influencing exchange rates and international financial management decisions.

Understand the concepts and applications of inferential and descriptive statistics.

Identify the characteristics of normal distribution and its importance in statistical analysis.

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Definitions:

Values

Fundamental beliefs or principles that guide an individual's or society's behavior and decision-making processes.

Persuasive Direct Request

A communication approach that clearly and convincingly asks for a specific action or response from the recipient.

Fund-raising Appeals

Requests or campaigns aimed at soliciting financial support for a cause, project, or organization.

Credibility

Ability to come across to the audience as believable.