Wealth and Health Company Is Financed Entirely by Common Stock

question 62

Multiple Choice

Wealth and Health Company is financed entirely by common stock that is priced to offer a 15% expected return.The common stock price is $40/share.The earnings per share (EPS) is expected to be $6.If the company repurchases 25% of the common stock and substitutes an equal value of debt yielding 6%,what is the expected value of earnings per share after refinancing? (Ignore taxes.)

• A)$6.00
• B)$7.52
• C)$7.20
• D)$6.90

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Definitions:

Owners Invested

The funds or resources that business owners put into their company to support its operations and growth.