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

question 47

Multiple Choice

Marley's is an unlevered firm with a total market value of $220,000 and 5,000 shares of stock outstanding.The firm has expected EBIT of $10,000 if the economy is normal and $12,000 if the economy booms.The firm is considering a bond issue of $88,000 with an attached interest rate of 5.9 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)$1.55
• B)$1.61
• C)$2.27
• D)$2.48
• E)$2.36

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Definitions:

Denial

A psychological defense mechanism in which confrontation with a personal problem or with reality is avoided by denying the existence of the problem or reality.

Painful Realities

Harsh truths or facts that are difficult to accept or cause emotional distress.

Defense Mechanism

Psychological strategies used unconsciously by individuals to protect themselves from anxiety and to cope with reality.

Nursing Health History

Data collected about a patient's present level of wellness, changes in life patterns, sociocultural role, and mental and emotional reactions to illness.