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:

Adaptive Challenges

Complex issues faced by an organization or individual that require changes in values, beliefs, roles, relationships, and approaches.

Orienting New Employees

The process of introducing new hires to their roles, the company culture, and the policies of the organization.

Organizational Settings

The environment and context within which an organization operates, including its culture, structure, and processes.

Corporate Settings

Environments related to, or engaged in by, corporations or large businesses, often involving formal organizational structures.