LT Transport Is an Unlevered Firm with a Total Market

question 23

Multiple Choice

LT Transport is an unlevered firm with a total market value of $672,000 and 50,000 shares of stock outstanding.The firm has expected EBIT of $64,500 if the economy is normal and $73,000 if the economy booms.The firm is considering a bond issue of $33,600 with an attached interest rate of 7.6 percent.The bond proceeds will be used to repurchase shares.The tax rate is 34 percent.What is the percentage increase in EPS if the economy booms rather than be normal?

• A)10.78%
• B)11.42%
• C)12.84%
• D)10.28%
• E)13.72%

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Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was put into use.

Cash

Money in the form of currency that is used to conduct transactions.

Accumulated Depreciation

The total amount of depreciation for a fixed asset that has been charged to expense since that asset was acquired and put into use.