Learn and Earn Company Is Financed Entirely by Common Stock

question 53

Multiple Choice

Learn and Earn Company is financed entirely by common stock that is priced to offer a
20% expected rate of return. The stock price is $60 and the earnings per share are $12. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding 8%, what is the expected earnings per share value after refinancing?

• A) $12.00
• B) $19.20
• C) $24.00
• D) None of the above

---

Definitions:

Statutory Irrevocability

Statutory irrevocability refers to a condition or status where certain rights, decisions, or agreements are made non-reversible by statute or law.

Counteroffer

A response to an initial offer, modifying its terms, which effectively rejects the original offer and presents a new one for consideration.

Rejection

In contract law, rejection refers to the refusal to accept an offer or a performance that does not conform to the terms of the contract, effectively terminating the offer.

Subject Matter

The specific topic, content, or area of focus of a discussion, study, or document.