Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Northern Wood Products is an all-equity firm with 21,900
shares of stock outstanding and a total market value of $
368,000. Based on its current capital structure, the firm is
expected to have earnings before interest and taxes of $
34,000 if the economy is normal, $20,400 if the economy is
in a recession, and $47,600 if the economy booms. Ignore
taxes. Management is considering issuing $92,800 of debt
with an interest rate of 6 percent. If the firm issues the debt,
the proceeds will be used to repurchase stock. What will the
earnings per share be if the debt is issued and the economy
is in a recession? Multiple Choice $68 $1.74 $91 $1.24 $2.57
Transcribed Image Text:Northern Wood Products is an all-equity firm with 21,900 shares of stock outstanding and a total market value of $368,000. Based on its current capital structure,
the firm is expected to have earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the economy is in a recession, and $47,600 if the
economy booms. Ignore taxes. Management is considering issuing $92,800 of debt with an interest rate of 6 percent. If the firm issues the debt, the proceeds will
be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession?
Multiple Choice
$.68
$1.74
$.91
$1.24
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