A Firm Issues 100,000 Equity Shares with a Total Market

question 98

Multiple Choice

A firm issues 100,000 equity shares with a total market value of $5,000,000.The firm's market value of debt is also of equal amount, i.e., $5,000,000.The firm is expected to generate $1.5 million in operating income and pay $250,000 in interest.Ignoring taxes, this will generate $12.50 earnings per share.What will happen to EPS if the firm's borrowing and interest expense increases by 50% and the number of shares in circulation is cut by 50% (assuming that the share price remains unchanged with this change in capital structure) ?

• A)EPS decrease to $10.00
• B)EPS decrease to $11.67
• C)EPS increase to $15.00
• D)EPS increase to $22.50

---

Definitions:

Screened Applicants

Individuals who have undergone a review or evaluation process to determine their suitability for a job or program.

Desperate Need

A condition of urgency or a critical demand for something essential, often resulting in immediate action.

Job Analysis Technique

The systematic process for gathering, documenting, and analyzing information in order to describe jobs.

Interview

A formal meeting, typically one-on-one, used for the purposes of assessment, research, or information gathering, often used in the context of job hiring.