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

question 9

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 . 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 decreases to $10.00.
• B) EPS decreases to $11.67.
• C) EPS increases to $15.00.
• D)EPS increases to $22.50.

---

Definitions:

Ethnicity

A category of people identified by shared cultural, linguistic, or ancestral traits.

Polygamous Family

A family structure where one individual has multiple spouses or partners simultaneously.

Marriageable Age

The legal minimum age at which an individual is permitted by law to marry, varying across different countries and cultures, often influenced by social, legal, or religious factors.

Foraging Societies

Communities that rely on hunting, fishing, and gathering wild food resources for their subsistence.