If the total capital expenditure amount increases for a stock index, which of the following will occur? Earnings per share (EPS):
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A) |
increases due to a decline in interest expense, and expected return of the index declines. |
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B) |
declines due to an increase in depreciation expense, and expected return of the index declines. |
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C) |
declines due to an increase in interest expense, and expected return of the index increases. |
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D) |
increases due a decline in depreciation expense, and expected return of the index increases. |
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The correct answer was B) declines due to an increase in depreciation expense, and expected return of the index declines.
There is a positive relationship between capital expenditures and depreciation expense. As cap ex rises, depreciation expense increases. This leads to a lower EPS number which, all else being equal, will lead to a lower expected return for the index. | 
发表于 2006-4-27 15:03
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