Firewall Corp

question 93

Multiple Choice

Firewall Corp. is a small company looking at two possible capital structures. Currently, the firm is an all-equity firm with $900,000 in assets and 100,000 shares outstanding. The market value of each share is $9.00. The CEO of Firewall is thinking of leveraging the firm by selling $270,000 of debt financing and retiring 30,000 shares, leaving 70,000 shares outstanding. The cost of debt is 6% annually, and the current corporate tax rate for Donat is 30%. The CEO believes that Donat will earn $100,000 per year before interest and taxes. Which of the statements below is TRUE?

• A) All-equity EPS is $0.70.
• B) 50/50 debt-to-equity EPS is $0.838.
• C) Shareholders will be better off by almost $0.14 per share under a firm with $270,000 in debt financing versus a firm that is all-equity.
• D) Statements (A) through (C) are all true.

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Definitions:

Convictions

Legal judgments that a person is guilty of a crime.

Sex Offenses

Legal violations involving non-consensual sexual activities or behavior, subject to criminal penalties and social stigmatization.

Sexual Abuse Offenses

Acts of forcing or coercing someone into unwanted sexual activity, including both physical and non-physical forms, recognized as criminal behavior.

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The heinous act of deliberately killing a child, which is considered one of the most severe forms of homicide.