Student name:
1) The Greenbriar is an all-equity firm with a total market value of $545,000 and 21,500
shares of stock outstanding. Management is considering issuing $145,000 of debt at an interest
rate of 7 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares
will the firm repurchase if it issues the debt securities?
1)
A) 5,720 shares
B) 38,150shares
C) 6,356shares
D) 6,934shares
E) 400shares
Question Details
Difficulty : 1 Basic
Topic : Capital structure
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
2) Ornaments, Incorporated, is an all-equity firm with a total market value of $619,000 and
28,400 shares of stock outstanding. Management believes the earnings before interest and taxes
(EBIT) will be $88,300 if the economy is normal. If there is a recession, EBIT will be 30 percent
lower, and if there is a boom, EBIT will be 40 percent higher. The tax rate is 21 percent. What is
the EPS in a recession?
2)
A) $1.72
B) $2.61
C) $1.87
D) $1.12
E) $2.43
,Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
3) Summer Tan, Incorporated, is an all-equity firm with a total market value of $553,000
and 37,700 shares of stock outstanding. Management believes the earnings before interest and
taxes (EBIT) will be $81,000 if the economy is normal. If there is a recession, EBIT will be 25
percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 21 percent.
What is the EPS in a boom?
3)
A) $2.29
B) $.84
C) $.97
D) $1.61
E) $1.29
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
,4) Northern Wood Products is an all-equity firm with 21,900 shares of stock outstanding
and a total market value of $368,000. Based on its current capital structure, the firm is expected
to have earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the
economy is in a recession, and $47,600 if the economy booms. Ignore taxes. Management is
considering issuing $92,800 of debt with an interest rate of 6 percent. If the firm issues the debt,
the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is
issued and the economy is in a recession?
4)
A) $.91
B) $1.74
C) $.68
D) $1.24
E) $2.57
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
5) Southern Wind is an all-equity firm with 23,300 shares of stock outstanding and a total
market value of $368,000. Based on its current capital structure, the firm is expected to have
earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the economy
is in a recession, and $47,600 if the economy booms. Ignore taxes. Management is considering
issuing $92,800 of debt with an interest rate of 6 percent. If the firm issues the debt, the proceeds
will be used to repurchase stock. What will the earnings per share be if the debt is issued and the
economy booms?
5)
, A) $1.63
B) $2.10
C) $2.61
D) $2.79
E) $2.41
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
6) Cross Town Cookies is an all-equity firm with a total market value of $730,000. The firm
has 46,000 shares of stock outstanding. Management is considering issuing $167,000 of debt at
an interest rate of 7 percent and using the proceeds to repurchase shares. Before the debt issue,
EBIT will be $65,000. What is the EPS if the debt is issued? Ignore taxes.
6)
A) $.99
B) $1.74
C) $1.63
D) $1.30
E) $1.50
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
1) The Greenbriar is an all-equity firm with a total market value of $545,000 and 21,500
shares of stock outstanding. Management is considering issuing $145,000 of debt at an interest
rate of 7 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares
will the firm repurchase if it issues the debt securities?
1)
A) 5,720 shares
B) 38,150shares
C) 6,356shares
D) 6,934shares
E) 400shares
Question Details
Difficulty : 1 Basic
Topic : Capital structure
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
2) Ornaments, Incorporated, is an all-equity firm with a total market value of $619,000 and
28,400 shares of stock outstanding. Management believes the earnings before interest and taxes
(EBIT) will be $88,300 if the economy is normal. If there is a recession, EBIT will be 30 percent
lower, and if there is a boom, EBIT will be 40 percent higher. The tax rate is 21 percent. What is
the EPS in a recession?
2)
A) $1.72
B) $2.61
C) $1.87
D) $1.12
E) $2.43
,Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
3) Summer Tan, Incorporated, is an all-equity firm with a total market value of $553,000
and 37,700 shares of stock outstanding. Management believes the earnings before interest and
taxes (EBIT) will be $81,000 if the economy is normal. If there is a recession, EBIT will be 25
percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 21 percent.
What is the EPS in a boom?
3)
A) $2.29
B) $.84
C) $.97
D) $1.61
E) $1.29
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
,4) Northern Wood Products is an all-equity firm with 21,900 shares of stock outstanding
and a total market value of $368,000. Based on its current capital structure, the firm is expected
to have earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the
economy is in a recession, and $47,600 if the economy booms. Ignore taxes. Management is
considering issuing $92,800 of debt with an interest rate of 6 percent. If the firm issues the debt,
the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is
issued and the economy is in a recession?
4)
A) $.91
B) $1.74
C) $.68
D) $1.24
E) $2.57
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
5) Southern Wind is an all-equity firm with 23,300 shares of stock outstanding and a total
market value of $368,000. Based on its current capital structure, the firm is expected to have
earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the economy
is in a recession, and $47,600 if the economy booms. Ignore taxes. Management is considering
issuing $92,800 of debt with an interest rate of 6 percent. If the firm issues the debt, the proceeds
will be used to repurchase stock. What will the earnings per share be if the debt is issued and the
economy booms?
5)
, A) $1.63
B) $2.10
C) $2.61
D) $2.79
E) $2.41
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
6) Cross Town Cookies is an all-equity firm with a total market value of $730,000. The firm
has 46,000 shares of stock outstanding. Management is considering issuing $167,000 of debt at
an interest rate of 7 percent and using the proceeds to repurchase shares. Before the debt issue,
EBIT will be $65,000. What is the EPS if the debt is issued? Ignore taxes.
6)
A) $.99
B) $1.74
C) $1.63
D) $1.30
E) $1.50
Question Details
Difficulty : 1 Basic
Learning Objective : 16-01 Explain the effect of financial leverage.
Section : 16.2 The Effect of Financial Leverage
AACSB : Analytical Thinking
Topic : Earnings per share
Bloom's : Understand
Accessibility : Screen Reader Compatible
Accessibility : Keyboard Navigation
