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

question 8

Multiple Choice

Marley's is an unlevered firm with a total market value of $190,000 with 5,000 shares of stock outstanding.The firm has expected EBIT of $7,500 if the economy is normal and $9,000 if the economy booms.The firm is considering a $76,000 bond issue with an attached interest rate of 4.5 percent.The bond proceeds will be used to repurchase shares.The tax rate is 35 percent.What will be the earnings per share after the repurchase if the economy booms?

• A)$1.333
• B)$1.860
• C)$1.950
• D)$1.038
• E)$1.209

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Definitions:

Cognitive Anthropology

A branch of anthropology that studies how people perceive, think about, and understand the world around them.

Social Exchange Theory

Theory that seeks to understand social behavior by analyzing the costs and benefits of interacting with each other; it assumes that sex is a resource that women have and men want.

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