Knight Moves Is Considering Two Alternative Financing Plans

question 65

Multiple Choice

Knight Moves is considering two alternative financing plans. The firm is expected to operate at the $75 million EBIT level. Under Plan D (debt financing) EPS is expected to be $2.25, and under Plan E (equity financing) EPS is expected to be $1.82. If the market is expected to assign a P/E ratio of 12 to the debt plan and 15 to the equity plan, which plan should Knight pursue?

• A) debt
• B) equity
• C) indifferent between the two alternatives
• D) neither is satisfactory

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Definitions:

Validity

The degree to which a concept, conclusion, or measurement is well-founded and likely corresponds accurately to the real world.

Reliability

Reliability in social science research refers to the consistency and dependability of measurement tools and methods, ensuring that studies can be replicated and results are stable over time.

Interconnected

Having parts or elements linked or related closely to each other.

Bell Hooks

An influential cultural critic, feminist theorist, and author known for her work on race, class, and gender.