Volga Publishing Is Considering a Proposed Increase in Its Debt

question 48

Multiple Choice

Volga Publishing is considering a proposed increase in its debt ratio, which would also increase the company's interest expense.The plan would involve issuing new bonds and using the proceeds to buy back shares of its common stock.The company's CFO thinks the plan will not change total assets or operating income, but that it will increase earnings per share Assuming the CFO's estimates are correct, which of the following statements is CORRECT?

• A)Since the proposed plan increases Volga's financial risk, the company's stock price still might fall even if EPS increases.
• B)If the plan reduces the WACC, the stock price is also likely to decline.
• C)Since the plan is expected to increase EPS, this implies that net income is also expected to increase.
• D)If the plan does increase the EPS, the stock price will automatically increase at the same rate.
• E)Under the plan there will be more bonds outstanding, and that will increase their liquidity and thus lower the interest rate on the currently outstanding bonds.

Understand research methods and challenges in studying infant perception and development.

Describe cohort effects and their influence on individual development.

Recognize the role of genetics in development (nature).

Understand cognitive processes and their development across the lifespan.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales activity, such as rent and salaries.

Traceable Fixed Expense

Fixed expenses that can be directly linked to a specific department, project, or segment within a company.

Net Operating Income

A calculation of a firm's profit, determined by deducting operational costs from the income gained through business activities.

Nearest Whole Number

A round-off method where decimal values are rounded to the closest integer.