The Ames Company Has an Expected EBIT of $16 Million

question 84

Multiple Choice

The Ames Company has an expected EBIT of $16 million with a standard deviation of $8 million. The indifference point between a debt financing alternative and a common stock financing alternative was computed to be $12 million. Determine the probability that the equity financing alternative will be superior to the debt financing alternative (i.e., have a higher EPS) . (Problem requires normal distribution table.)

• A) 50.0%
• B) 30.85%
• C) 69.15%
• D) cannot be computed

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Definitions:

Lacquer

A smooth, often glossy protective coating that can be applied to materials like wood and metal, originating from the sap of the lacquer tree.

Overglaze Enamel

A decorative technique used in ceramics where a layer of enamel is applied over an already fired and glazed piece, and then refired to fuse the enamel to the surface.

Qing Dynasty

The last imperial dynasty of China, ruling from 1644 to 1912, known for its expansion of Chinese territory and development of a distinct Chinese culture.

Underglaze Color

A ceramic technique where color is applied to pottery before it is glazed, allowing for intricate designs and vibrant colors that are protected by the final glaze coat.