Learn and Earn Company Is Financed Entirely by Common Stock

question 23

Multiple Choice

Learn and Earn Company is financed entirely by common stock that is priced to offer a 20 percent expected rate of return.The stock price is $60 and the earnings per share are $12.If the company repurchases 50 percent of the stock and substitutes an equal value of debt yielding 8 percent, what is the expected earnings per share value after refinancing?

• A)$12
• B)$19.20
• C)$24
• D)$15.60

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Definitions:

Monopsonistic Employer

A market situation where a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.

Minimum-Wage Legislation

Laws set by governments to establish the lowest amount that employers can pay their workers per hour.

Deflationary

Pertaining to or causing a decrease in the general price level of goods and services, often leading to increased purchasing power of money.

Bilateral Monopoly

A market structure where a single buyer (monopsony) faces a single seller (monopoly), leading to unique negotiation dynamics for prices and terms of exchange.