CCL is an unlevered firm with a total market value of $448,000 with 28,000 shares of stock outstanding.The firm has expected EBIT of $27,500 if the economy is normal and $32,000 if the economy booms.The firm is considering a bond issue of $80,000 with an attached interest rate of 6 percent.The bond proceeds will be used to repurchase shares.The tax rate is 34 percent.What will the earnings per share be after the repurchase if the economy is normal?
A)$1.333
B)$1.860
C)$1.950
D)$1.038
E)$.65

Question

Quizplus · Accepted Answer

Price per share = $448,000/28,000 = $16Number of shares repurchased = $80,000/$16 = 5,000 sharesEPS_Normal = {[$27,500 - (.06 × $80,000)](1 - .34)}/(28,000 - 5,000)= $.65

CCL Is an Unlevered Firm with a Total Market Value