Farar,IncProjects Operating Income of $4 Million Next Year

question 28

Multiple Choice

Farar,Inc.projects operating income of $4 million next year.The firm's income tax rate is 40%.Farar presently has 750,000 shares of common stock,no preferred stock,and no debt.The firm is considering the issuance of $6 million of 10% bonds to finance a new product that is not expected to generate an increase in income for two years.If Farar issues the bonds this year,what will projected EPS be next year?

• A)$1.53
• B)$1.98
• C)$2.33
• D)$2.72
• E)$3.12

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Definitions:

Sell

The act of exchanging a product or service for money or other compensation.

Bailment

A legal relationship where physical possession of personal property is transferred from one party to another, with the understanding that the property will be returned.

Writing

The act or process of producing and recording words in a form that can be read and understood; typically involves the use of a pen, pencil, or keyboard.

Bailee

A person or entity to whom goods are entrusted for a specific purpose by the bailor, who owns the goods.