Question

Question 5 2.5 pts 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? $2.21 $2.33 $2.80 $2.50

Answer 1

EPS if the economy falls into recession and the firm maintains its all-equity status
=(70000-0)*(1-0)/25000
=2.80