Marley's is an unlevered firm with a total market value of $180,000 with 4,000 shares of stock outstanding.The firm has expected EBIT of $6,500 if the economy is normal and $8,000 if the economy booms.The firm is considering a $67,500 bond issue with an attached interest rate of 6.5 percent.The bond proceeds will be used to repurchase shares.Ignore taxes.What will the earnings per share be after the repurchase if the economy booms?
A)$1.552
B)$1.610
C)$1.445
D)$3.200
E)$2.905

Question

Quizplus · Accepted Answer

Price per share = $180,000/4,000 = $45Number of shares repurchased = $67,500/$45 = 1,500 sharesEPS_Boom = [$8,000 - (.065 × $67,500)]/(4,000 - 1,500)= $1.445

Marley's Is an Unlevered Firm with a Total Market Value