Question 11 (5 points) Smith Corporation is a start-up company that has a capital structure with a debt/assets ratio equal to 0.75. Smith has no preferred stock. There are two possible scenarios with respect to the firm's operations: The first scenario has a 60 percent probability of occurring, and the forecast earnings before interest and taxes (EBIT) in this scenario is $60,000. The second scenario has a 40 percent chance of occurring, and the EBIT is expected to be $20,000. Further, the firm's cost of debt is 12 percent. The firm has $400,000 in total assets, and its marginal tax rate is 40 percent. The company has 10,000 shares of stock outstanding. What is the difference between the earnings per share (EPS) forecasts for the first scenario and the second scenario? $1.48 per share $0.48 per share $1.44 per share $2.40 per share Lollipop Corporation is a start-up firm with a capital structure that includes 25 percent debt. Lollipop has no preferred stock. The firm has two possible scenarios for its operations: Green or Blue. The Green scenario has a 70 percent probability of occurring and the forecast earnings before interest and taxes (EBIT) in this scenario is $80,000. The Blue scenario has a 30 percent chance of occurring and the EBIT is expected to be $32,000. Further, the firm's cost of debt is 10 percent. The firm has $500,000 in total assets and its marginal tax rate is 30 percent. The company has 22,000 shares of common stock outstanding. Calculate the difference in earnings per share (EPS) for the capital structure $1.53 $1.48 O $1.20 O $2.24 Franklin Corp. has 3 million shares of common stock outstanding. The stock is selling at $30 per share. If Franklin announces a 20 percent stock dividend, the transfer that must be made from retained earnings to the common stock account to account for the stock dividend will be $3,600,000 $14,400,000 $18,000,000 $108,000,000 Question 11 (5 points) Smith Corporation is a start-up company that has a capital structure with a debt/assets ratio equal to 0.75. Smith has no preferred stock. There are two possible scenarios with respect to the firm's operations: The first scenario has a 60 percent probability of occurring, and the forecast earnings before interest and taxes (EBIT) in this scenario is $60,000. The second scenario has a 40 percent chance of occurring, and the EBIT is expected to be $20,000. Further, the firm's cost of debt is 12 percent. The firm has $400,000 in total assets, and its marginal tax rate is 40 percent. The company has 10,000 shares of stock outstanding. What is the difference between the earnings per share (EPS) forecasts for the first scenario and the second scenario? $1.48 per share $0.48 per share $1.44 per share $2.40 per share Lollipop Corporation is a start-up firm with a capital structure that includes 25 percent debt. Lollipop has no preferred stock. The firm has two possible scenarios for its operations: Green or Blue. The Green scenario has a 70 percent probability of occurring and the forecast earnings before interest and taxes (EBIT) in this scenario is $80,000. The Blue scenario has a 30 percent chance of occurring and the EBIT is expected to be $32,000. Further, the firm's cost of debt is 10 percent. The firm has $500,000 in total assets and its marginal tax rate is 30 percent. The company has 22,000 shares of common stock outstanding. Calculate the difference in earnings per share (EPS) for the capital structure $1.53 $1.48 O $1.20 O $2.24 Franklin Corp. has 3 million shares of common stock outstanding. The stock is selling at $30 per share. If Franklin announces a 20 percent stock dividend, the transfer that must be made from retained earnings to the common stock account to account for the stock dividend will be $3,600,000 $14,400,000 $18,000,000 $108,000,000
