Question
Christmas Ornaments, Inc. is an all-equity firm with a total market value of $375,000 and 15,000 shares of stock outstanding. Management is considering issuing $75,000
Christmas Ornaments, Inc. is an all-equity firm with a total market value of $375,000 and 15,000 shares of stock outstanding. Management is considering issuing $75,000 of debt at an interest rate of 8 percent and using the proceeds on a stock repurchase. As an all-equity firm, management believes the earnings before interest and taxes (EBIT) will be $20,000 if the economy is normal, $10,000 if it is in a recession, and $25,000 if the economy booms. Ignore taxes. What will the EPS be if the economy enjoys a boom and the firm maintains its all-equity status? A $2.00 B $0.80 C $1.50 D $1.75 Steps shown please
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