Brown's Is an Unlevered Firm with a Total Market Value

question 21

Multiple Choice

Brown's is an unlevered firm with a total market value of $368,000 and 18,400 shares of stock outstanding.The firm has expected EBIT of $17,500 if the economy is normal and $19,000 if the economy booms.The firm is considering a bond issue of $120,000 with an attached interest rate of 5.9 percent.The bond proceeds will be used to repurchase shares.The tax rate is 34 percent.What will be the earnings per share after the repurchase if the economy booms?

• A)$0.92
• B)$0.84
• C)$0.75
• D)$0.59
• E)$0.63

---

Definitions:

Specific Goals

Clearly defined, measurable, and time-bound objectives that guide actions and facilitate performance assessment.

Expectancy Theory

A motivational theory suggesting that individuals are more likely to act in certain ways based on the expected results of those actions, particularly in relation to rewards.

Motivation

The internal and external factors that stimulate individuals to take actions that lead to achieving a goal.

Expectancy Theory

A motivational theory suggesting that individuals are motivated to perform based on the expected outcome and the value associated with that outcome.