1) The Greenbriar is an all-equity firm with a total market value of $545,000 and 21,500 shares of stock outstanding. Management is considering issuing $145,000 of debt at an interest rate of 7 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities?

Multiple Choice 6,356 shares 6,934 shares 38,150 shares 400 shares 5,720 shares

2)Ornaments, Inc., is an all-equity firm with a total market value of $685,000 and 35,000 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $98,500 if the economy is normal. If there is a recession, EBIT will be 10 percent lower, and if there is a boom, EBIT will be 20 percent higher. The tax rate is 40 percent. What is the EPS in a recession?

multiple Choice

• $2.03

• $1.35

• $1.52

• $1.86

• $1.69

• 3) Kelso Electric is an all-equity firm with 50,000 shares of stock outstanding. The company is considering the issue of $340,000 in debt at an interest rate of 6 percent and using the proceeds to repurchase stock. Under the new capital structure, there would be 31,000 shares of stock outstanding. Ignore taxes. What is the break-even EBIT between the two plans?

  Multiple Choice

• $53,684

• $58,158

• $33,284

• $46,015

• $37,445