Assume That You Are Comparing Two Firms Which Are Identical,with

question 36

Multiple Choice

Assume that you are comparing two firms which are identical,with one exception.Firm A is an all-equity firm and firm B has a debt-equity ratio of 0.60.All else equal,firm A will:

• A)generate a higher EBIT,but lower net income than firm B
• B)generate a lower EBIT,but higher net income than firm B
• C)always have higher EPS than firm B,since it has no interest expense
• D)have lower EPS than firm B when the level of earnings before interest and taxes (EBIT)is relatively high
• E)have lower EPS than firm B when the level of EBIT is relatively low

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Definitions:

Tight Junctions

Specialized connections between adjacent cells in animal tissues that create a barrier to prevent leakage of materials through intercellular spaces.

Denatured

The process in which proteins or nucleic acids lose their tertiary structure and function due to external stress or compounds.

Gap Junctions

Cell structures that allow for the direct communication between cells through the connecting of cytoplasmic channels, enabling the transfer of various molecules and ions.

Channel Proteins

Proteins that form pores in a cell membrane, allowing specific ions or molecules to pass through.