Eigner Engineering Is Currently Unlevered with 2,000 Shares Outstanding and Assets

question 43

Essay

Eigner Engineering is currently unlevered with 2,000 shares outstanding and assets valued at $50,000.The company expects operating income in the current period to be $6,000.Suppose that the company can exchange 400 shares of stock for $10,000 in debt paying 10% interest.From the standpoint of EPS,would the exchange be wise? Assume no taxes.

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