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Boston Lumber is unlevered with 222 shares outstanding and earnings before interest and taxes, or EBIT, of 625 . Corporate earnings are taxed at a
Boston Lumber is unlevered with 222 shares outstanding and earnings before interest and taxes, or EBIT, of 625. Corporate earnings are taxed at a rate of 30%. Suppose that Boston Lumber makes a decision to partition its assets into debt and equity by using the newly raised debt capital to buy back a portion of the stock. The firm issues $1550 of debt at a cost of 7.85%. The partition does not change EBIT but reduces the number of shares outstanding to 147. Which of the following is Boston Lumber's EPS after the partition?
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