Durbin,Inc

question 62

Multiple Choice

Durbin,Inc.,is an unlevered firm with a total market value of $460,000 and 40,000 shares of stock outstanding.The firm has expected EBIT of $48,000 if the economy is normal and $56,000 if the economy booms.The firm is considering a bond issue of $57,500 with an attached interest rate of 6.8 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)$1.49
• B)$1.63
• C)$1.45
• D)$1.54
• E)$1.68

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Definitions:

Perpetuity

A type of financial asset that generates a never-ending stream of cash flows or payments with no expiration date.

Equal Payments

Regularly scheduled payments of the same amount, often used in loans and amortization schedules.

Equal Intervals

Equal intervals refer to divisions or measurements in data that have the same length or duration between them, commonly used in statistical analysis and research.

Received

To have taken possession or delivery of an item, payment, or communication.