Multiple Choice
Jones Inspection Services is an all-equity firm with a total market value of $1,245,000 and 25,000 shares of stock outstanding.Management is considering issuing $200,000 of debt at an interest rate of 6 percent and using the proceeds on a stock repurchase.As an all-equity firm, management believes its earnings before interest and taxes (EBIT) will be $210,000 if the economy is normal, $70,000 if it is in a recession, and $325,000 if the economy booms.Ignore taxes.What will the EPS be if the economy falls into a recession and the firm maintains its all-equity status?
A) $1.75
B) $2.80
C) $2.21
D) $2.50
E) $2.33
Correct Answer:
Verified
Correct Answer:
Verified
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