LT Transport Is an Unlevered Firm with a Total Market

question 13

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:

Electronegativity

An indicator of how strongly an atom pulls towards itself a pair of electrons that are being shared in a bond.

Resonance Stabilization

The stabilization of molecular structures by delocalizing electrons within conjugated systems or between atoms that can host multiple structures.

Acid-Base Reaction

A chemical reaction that involves the transfer of protons (H+) from an acid to a base.

Increasing Acidity

Increasing acidity refers to the phenomenon where the hydrogen ion (H+) concentration increases, making a solution more acidic.