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

question 78

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 75% and the number of shares in circulation is cut by 75% (assuming that the share price remains unchanged with this change in capital structure) ?

• A) EPS decrease to $10.00.
• B) EPS stay at $12.50.
• C) EPS increase to $30.00.
• D) EPS increase to $42.50.

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Definitions:

Cognitive-Behavioural Therapy

A therapy approach focusing on changing negative thought patterns and behaviors to improve emotional regulation and personal coping strategies.

Psychotherapy

A general term for treating mental health problems by talking with a psychiatrist, psychologist or other mental health provider.

Effectiveness

The degree to which something achieves its intended outcome or results under real-world conditions.

Extrapyramidal Effects

Side effects of certain medications that act on the brain's motor system, leading to involuntary movements, tremors, and other movement disorders.