Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings after taxes, and a market value of $100 million. The firm borrows $25 million at an interest rate of 8% and buys back 500,000 shares with the proceeds. The firm's tax rate is 40%. Management does not want the earnings performance to disappoint shareholders and market analysts. What is the maximum interest rate the firm could pay on its new debt so as not to experience a decrease in earnings per share after the stock repurchase?

Select one:

A. 8.00%

B. 10.00%

C. 11.50%

D. 12.60%

E. None of the above

Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings after taxes, and a market value of $100 million. The firm borrows $25 million at an interest rate of 8% and buys back 500,000 shares with the proceeds. The firm's tax rate is 40%. What effect will this transaction have on the firm's earnings per share?

Select one:

A. EPS will decrease by $.60 per share

B. EPS will increase by $.40 per share

C. EPS will decrease by $.30 per share

D. EPS will increase by $.20 per share

E. None of the above