Northern Wood Products is an all-equity firm with 22,300 shares of stock outstanding and a total market value of $369,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $34,500 if the economy is normal, $20,800 if the economy is in a recession, and $48,200 if the economy booms. Ignore taxes. Management is considering issuing $93,100 of debt with an interest rate of 7 percent. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession?

Multiple Choice

$1.19

$2.50

$.86

$1.68

$.64