Farar,IncProjects Operating Income of $4 Million Next Year

Multiple Choice

Farar,Inc.projects operating income of $4 million next year.The firm's income tax rate is 40%.Farar presently has 750,000 shares of common stock,no preferred stock,and no debt.The firm is considering the issuance of $6 million of 10% bonds to finance a new product that is not expected to generate an increase in income for two years.If Farar issues the bonds this year,what will projected EPS be next year?

A) $1.53
B) $1.98
C) $2.33
D) $2.72
E) $3.12