Fanny Nanny Weight Monitors Inc

question 54

Multiple Choice

Fanny Nanny Weight Monitors Inc. is considering two financial alternatives for financing a major expansion program. Under either alternative, EBIT is expected to be $12.5million. Currently the firm's capital structure consists of 2 million shares of common stock and $15 million in 6% long-term bonds. Under the debt financing alternative $8 million in 4% long-term bonds will be sold and under the equity financing alternative the firm would sell 150,000 shares of common stock. The P/E under the debt alternative would be 21 and the P/E under the equity alternative would be 22. The firm's marginal tax rate is 40%. Which alternative would produce the higher stock price?

• A) debt-stock price of $57.36
• B) debt-stock price of $70.98
• C) equity-stock price of $71.28
• D) equity-stock price of $85.32

Calculate and analyze individual’s budget constraint equations.

Evaluate the economic welfare implications of price changes on utility.

Understand the concept of endowments and the effect of changes in prices on consumption choices.

Analyze the trade-offs between labor income and leisure in determining optimal work hours.

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Definitions:

Braxton-Hicks Contraction

Irregular, often painless contractions that occur during pregnancy as the uterus prepares for childbirth; sometimes referred to as "false labor."

Oxytocin

A hormone and neurotransmitter that plays a role in social bonding, reproduction, childbirth, and the period after childbirth.

Chromosomes

Thread-like structures located inside the nucleus of animal and plant cells, made of protein and a single molecule of DNA, which carry genetic information.

Genes

The basic unit of genetic information.