Jones Inspection Services Is an All-Equity Firm with a Total

question 13

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

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