Knight Moves Is Considering Two Alternative Financing Plans

question 51

Multiple Choice

Knight Moves is considering two alternative financing plans.The firm is expected to operate at the $75 million EBlT 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 PIE 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:

Reciprocal Relationship

A mutual relationship where both parties benefit and influence each other, such as the interplay between work and personal life.

Differentiation

The process of distinguishing or creating differences between products, services, or concepts, often to create a competitive advantage.

Congruence

The degree of agreement, harmony, or similarity between two or more aspects, such as personal values and career choices.

Clarity of Identity

The clear and distinct understanding of one's own personal identity, values, and beliefs.