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- AAA Company is financed entirely by common stock that is priced to offer a 15 percent expected return. The common stock price is USD 40 per share. The earnings per share (EPS) is expected to be USD 6. If the company repurchases 25 percent of the common stock and substitutes an equal value of debt yielding 6 percent, what is the expected value of earnings per share after refinancing? (Ignore taxes.)
- Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value. For example, in the case of the current ratio, a "good" value is neither high nor low.
- T/F: An example of systematic risk would be if the stock of airlines dropped after two airplanes crashed on the same day making many passengers too nervous to fly.