Volga Publishing Is Considering a Proposed Increase in Its Debt

question 3

Multiple Choice

Volga Publishing is considering a proposed increase in its debt ratio,which would also increase the company's interest expense.The plan would involve issuing new bonds and using the proceeds to buy back shares of its common stock.The company's CFO thinks the plan will not change total assets or operating income but that it will increase earnings per share (EPS) .Assuming the CFO's estimates are correct,which of the following statements is correct?

• A)Since the proposed plan increases Volga's financial risk, the company's share price still might fall even if EPS increases.
• B)If the plan reduces the WACC, the share price is also likely to decline.
• C)Since the plan is expected to increase EPS, this implies that net income is also expected to increase.
• D)If the plan does increase the EPS, the share price will automatically increase at the same rate.

---

Definitions:

Conflict Theory

A sociological perspective focusing on the struggles between different social groups over resources and power.

Feminist

A person who supports feminism, advocating for equal rights and opportunities for all genders.

Feminist Theory

An interdisciplinary approach to understanding social phenomena, focusing on gender inequality and advocating for women's rights and equality.

Symbolic Interactionism

A sociological theory that emphasizes the role of symbols and language as core elements of all human interaction.