Suppose That BBB Pays Corporate Taxes of 35% and That

question 110

Multiple Choice

Suppose that BBB pays corporate taxes of 35% and that shareholders expects the change in debt to be permanent.Assuming that capital markets are perfect except for the existence of corporate taxes,the share price for BBB after this announcement is closest to:

• A)$10.00
• B)$10.85
• C)$8.60
• D)$11.40

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Definitions:

EPS Growth Rate

The rate at which a company's earnings per share (EPS) has grown or is expected to grow.

Rate of Return

The financial gain or loss encountered on an investment over a fixed term, represented as a percentage of the investment's first expenditure.

EPS

Earnings Per Share, a key indicator of a company's profitability, calculated as the company's profit divided by the number of outstanding shares.