Consider Two Firms That Are Identical in Every Way Except

question 79

Multiple Choice

Consider two firms that are identical in every way except that one has $1,200 of debt and 350 shares of stock outstanding,while the other is all-equity and has 400 shares of stock outstanding.Assume that the debt is a perpetuity with annual coupons at the rate of 7%.What is each firm's earnings per share if EBIT is $5,000? Assume a tax rate of 40%.

• A) EPS_L = 8.39; EPS_E = 7.50
• B) EPS_L = 8.39; EPS_E = 8.39
• C) EPS_L = 7.50; EPS_E = 7.50
• D) EPS_L = 7.50; EPS_E = 8.39
• E) EPS_L = 8.43; EPS_E = 7.50

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Definitions:

Word

A grouping or a number of bits in a sequence treated as a unit.

Data Manipulation

The process of exchanging, altering, or moving data within a programmable logic controller or between programmable logic controllers.

Operation

The action or process of functioning or working.

Words

In computing, fixed-sized units of data, as defined by the processor architecture, that are handled as a single unit.