1)Cross Town Cookies is an all-equity firm with a total market value of $745,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $176,000 of debt at an interest rate of 6 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $66,800. What is the EPS if the debt is issued? Ignore taxes. rev: 06_14_2019_QC_CS-170956

Multiple Choice

$1.60

$.99

$1.73

$1.85

$1.36

2) Which group has the ultimate control over a corporation?

Multiple Choice

• Bondholders

• Classified board

• Shareholders

• Directors

• Chief executive officer

3)

Harrison, Inc., has the following book value balance sheet:

Assets				Total Debt and Equity
Current assets	$	155,000,000		Total debt	$	225,000,000
				Equity
				Common stock	$	45,000,000
				Capital surplus		80,000,000
Net fixed assets		375,000,000		Accumulated retained earnings		180,000,000
				Total shareholders' equity	$	305,000,000
Total assets	$	530,000,000		Total debt and shareholders' equity	$	530,000,000

a.	What is the debt-equity ratio based on book values? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
b.	Suppose the market value of the company's debt is $226.5 million and the market value of equity is $700 million. What is the debt-equity ratio based on market values? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)