Zybeck Corp

question 97

Multiple Choice

Zybeck Corp. projects operating income of $4 million next year. The firm's income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. There are no issuance costs for either the bonds or the stock. If Zybeck issues common stock this year, what will projected EPS be next year?

• A) $2.10
• B) $2.96
• C) $2.33
• D) $1.67

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Definitions:

Accounts Receivable

The balance of money owed to a company by its customers for goods or services delivered or used but not yet paid for.

Credit

An entry recording an increase in assets or decrease in liabilities and equity on the company’s balance sheet, or the provision of goods or services in exchange for a promise of payment in the future.

Equity

The value of an ownership interest in property, including shareholders' equity in a company, represented by the assets minus liabilities.

Revenues

The total amount of money generated by the sale of goods, services, or other income for a company before any expenses are deducted.