Author Question: Victor Publishing is considering a proposed increase in its debt ratio, which would also increase ... (Read 415 times)

bvyeehaw · **on:** Aug 7, 2023

Victor Publishing is considering a proposed increase in its debt ratio, which would also increase the company’s interest expense. The plan would involve issuing new bonds and using the proceeds to buy back shares of its common stock. The company’s CFO thinks the plan will not change total assets or operating income but that it will increase earnings per share (EPS). Assuming the CFO’s estimates are correct, which of the following statements is correct?

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Since the proposed plan increases Victor’s business risk, the company’s share price is also likely to decline.

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Since the proposed plan increases Victor’s financial risk, the company’s share price still might fall even if EPS increases.

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Since the plan is expected to increase EPS, this implies that EBIT is also expected to increase.

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If the plan does increase the EPS, the share price will automatically increase at the same rate.

delmiss · **Reply #1 on:** Aug 7, 2023

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