An All-Equity Firm Has 1 Million Shares Outstanding with a Market

question 38

Multiple Choice

An all-equity firm has 1 million shares outstanding with a market value of $10 million.It does not pay tax and has an operating income of $1.5 million.If $2 million of 10% debt is issued and the proceeds used to repurchase shares of stock,then the firm's EPS:

• A) increasesby 20% to $1.80.
• B) decreasesby 40%to $0.9.
• C) decreases by 20% to $1.20.
• D) increasesby 8.3% to $1.63.

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Definitions:

Research Question

A specific query that guides a scientific study or research project.

Prejudice

The negative evaluation of a social group, and individuals within that group, based upon conceptions about that social group that are held despite facts that contradict it.

Debriefing

A process whereby a researcher explains the true purpose of a research study to a subject (respondent); usually done after completion of the study.

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An experiment is a method of research in the sciences or social sciences that involves the manipulation of variables to test a hypothesis and observe the effects.