Kitchens and More Is an All-Equity Firm with 145,000 Shares

question 3

Multiple Choice

Kitchens and More is an all-equity firm with 145,000 shares of stock outstanding.The book value per share is $22 and the market value per share is $56.The current net income is $466,900.An expansion project will cost $2.2 million.Assume the price-earnings ratio remains constant.By what amount must the new project increase the net income for the stock price to remain at $56?

• A)$126,500
• B)$131,750
• C)$87,080
• D)$112,400
• E)$108,500

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Definitions:

Normal

Typically refers to something that conforms to a standard or common pattern; in statistics, a distribution that is symmetrically clustered around its mean.

Treasury Bond

A long-term, fixed-interest government debt security with a maturity of more than ten years.

Liquidity Risk

The risk of loss to an investor from the inability to sell a security to another investor at a price close to its true value.

Maturity Risk

The risk associated with the time until the bond or other fixed income instrument pays its principal back. It can affect interest rates and investment value.