A Firm Issues 100,000 Shares of Common Stock with a Total

question 82

Multiple Choice

A firm issues 100,000 shares of common stock with a total market value of $5,000,000 and an equal amount of debt.The firm is expected to generate $1.5 million in operating income and pay $250,000 in interest.If the firm does not pay tax,what will happen to EPS if the firm repurchases $3,750,000 of shares and substitutes an equal amount of debt?

• A) EPS decreases by 33.3% to $10.00.
• B) EPS stays at $12.50.
• C) EPS increases by 140% to $30.00.
• D) EPS increases by 240% to $42.50.

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Definitions:

Copper Wire

A conductive wire made from copper, commonly used in electrical wiring due to its high conductivity and flexibility.

Rosin Core

A type of solder with a core of rosin flux, used in electrical soldering to improve the solder's adhesion and electrical conductivity.

Silver Solder

An alloy used in soldering that contains silver, providing stronger joints compared to traditional solder due to its higher melting point.

Fluorescent Lights

A type of lighting that utilizes a phosphor coating inside a glass tube to produce light when an electric current causes a gas in the tube to glow.