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Boston Lumber is unlevered with 305 shares outstanding and earnings before interest and taxes, or EBIT, of 725 . Corporate earnings are taxed at a

Boston Lumber is unlevered with 305 shares outstanding and earnings before interest and taxes, or EBIT, of 725. Corporate earnings are taxed at a rate of 36%. 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 $2250 of debt at a cost of 7.85%. The partition does not change EBIT but reduces the number of shares outstanding to 230. Which of the following is Boston Lumber's EPS after the partition?

$3.15
$1.53
$1.15
$1.52

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