Your Girlfriend Plans to Start a New Company to Make

question 57

Multiple Choice

Your girlfriend plans to start a new company to make a new type of cat litter.Her father will finance the operation,but she will have to pay him back.You are helping her,and the issue now is how to finance the company,with equity only or with a mix of debt and equity.The price per unit will be $10.00 regardless of how the firm is financed.The expected fixed and variable operating costs,along with other information,are shown below.How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity,i.e. ,what is EPS_L - EPS_U? Do not round your intermediate calculations. ​

• A) $2.42
• B) $2.78
• C) $1.94
• D) $2.18
• E) $2.06

---

Definitions:

Salivary Amylase

In humans, enzyme in saliva that digests starch to maltose.

Secretin

A hormone produced by the small intestine that stimulates the pancreas to release bicarbonate-rich fluids, aiding digestion.

Chyme

Thick, semiliquid food material that passes from the stomach to the small intestine.

Sodium Bicarbonate

A chemical compound commonly known as baking soda, used in baking, cleaning, and as an antacid.