Answer a. Under the plan there will be more bonds outstanding, and that will inc

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a. Under the plan there will be more bonds outstanding, and that will increase their liquidity and thus lower the interest rate on the currently outstanding bonds. b. Since the proposed plan increases the firm's financial risk, the stock price might fall even if EPS increases. c. Since the plan is expected to increase EPS, this implies that net income is also expected to increase. d. If the plan does increase the EPS, the stock price will automatically increase at the same rate. e. If the plan reduces the WACC, the stock price is likely to decline.

Explanation / Answer

ANSWER : OPTION (d) If the plan does increase the EPS, the stock price will automatically increase at the same rate.

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