Question
16)The all-equity firm, Unlevered Corporation wants to diversify its business. The updated financial information for the company is shown here: Stock price $ 68 Number
16)The all-equity firm, Unlevered Corporation wants to diversify its business.
The updated financial information for the company is shown here:
Stock price $ 68 Number of shares 30,000 Total assets $ 8,000,000 Total liabilities $ 3,500,000 Net income $ 360,000
The firm is considering an investment that has the same PE ratio as the firm. The cost of the investment is $750,000, and it will be financed with a new equity issue. The return on the investment will equal the firm's current ROE.
What will happen to the EPS and Market-to-book ratio of the firm if the investment is undertaken.
Group of answer choices
EPS will increase; Book-to-market ratio will increase
EPS will increase; Book-to-market ratio is unchanged
EPS will increase; Book-to-market ratio will decrease
EPS will decrease; Book-to-market ratio will increase
EPS will decrease; Book-to-market ratio is unchanged
EPS will decrease; Book-to-market ratio will decrease
None of the above
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