McMillin Industries Is Currently 100% Equity fiNanced, Has 25,000 Shares

question 314

Multiple Choice

McMillin Industries is currently 100% equity financed, has 25,000 shares outstanding at a price of $30 a share, and produces an annual EBIT of $150,000. The firm is considering issuing $300,000 of
Debt and repurchasing shares. The cost of debt is 12%. Ignore taxes. By how much will EPS change
If the company issues the debt and EBIT remains constant?

• A) $.72
• B) $.76
• C) $1.54
• D) $1.60
• E) $1.72