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

question 76

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

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Definitions:

Affect

A broad range of feelings that individuals experience, encompassing both emotions and moods.

Attitude Object

Any entity that is the focus of an individual's attitude, including people, products, or concepts.

Zajonc's Hierarchy

A theory that proposes the sequence of cognitive processes involved in the appraisal of stimuli, emphasizing the primacy of affective responses over cognitive evaluations.

Effects Model

A model or theory in the fields of psychology or communication that describes the potential impacts of media and messages on individuals or societies.