Copybold Corporation Is a Start-Up Company That Has a Capital

question 18

Multiple Choice

Copybold Corporation is a start-up company that has a capital structure with a debt/assets ratio equal to 0.75. Copybold has no preferred stock. There are two possible scenarios with respect to the firm's operations: Feast or Famine. The Feast scenario has a 60 percent probability of occurring, and the forecast earnings before interest and taxes (EBIT) in this scenario is $60,000. The Famine scenario has a 40 percent chance of occurring, and the EBIT is expected to be $20,000. Further, the firm's cost of debt is 12 percent. The firm has $400,000 in total assets, and its marginal tax rate is 40 percent. The company has 10,000 shares of stock outstanding. What is the difference between the earnings per share (EPS) forecasts for the Feast scenario and the Famine scenario?

• A)$1.44 per share
• B)$2.40 per share
• C)$1.48 per share
• D)$0.48 per share
• E)$0.96 per share

---

Definitions:

Communication Process

The transfer of information from a sender to a receiver through a medium, involving encoding, message transmission, reception, and decoding.

Glamour Magazine

A popular women's magazine that focuses on fashion, beauty, health, and entertainment.

Channel of Communication

The medium through which a message is transmitted from the sender to the receiver, such as email, phone, or face-to-face.

Encoding

In the context of communication, encoding is the process of converting information into a form that can be transmitted and understood by a receiver.