A Firm Has a Current Capital Structure Consisting of $400,000

question 155

Multiple Choice

A firm has a current capital structure consisting of $400,000 of 12 percent annual interest debt and 50,000 shares of common stock. The firm's tax rate is 40 percent on ordinary income. If the EBIT is expected to be $200,000, the firm's earnings per share will be ________.

• A) $2.40
• B) $3.04
• C) $7.04
• D) $1.82

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Definitions:

Cost of Goods Sold

The direct financial outlays for the creation of goods a company markets, involving materials and labor.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated before the next period's inventory is added.

Debt to Total Assets

A financial ratio that measures the percentage of a company's assets financed through debt.

Liquidity

The measure of how easily an asset can be converted into cash without affecting its market price.