Durbin,Inc

question 48

Multiple Choice

Durbin,Inc.,is an unlevered firm with a total market value of $460,000 and 40,000 shares of stock outstanding.The firm has expected EBIT of $48,000 if the economy is normal and $56,000 if the economy booms.The firm is considering a bond issue of $57,500 with an attached interest rate of 6.8 percent.The bond proceeds will be used to repurchase shares.Ignore taxes.What will be the earnings per share after the repurchase if the economy booms?

• A)$1.49
• B)$1.63
• C)$1.45
• D)$1.54
• E)$1.68

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Definitions:

Self-serving Bias

A cognitive bias that involves interpreting situations in a way that benefits oneself or assigning blame to external factors for personal failures and challenges.

Salience

The quality of being particularly noticeable or important; prominence.

Stereotypes

Oversimplified generalized beliefs about a particular group of people or things.

Diminished Judgement

A state or condition where a person's ability to make considered decisions or evaluations is impaired or reduced.