Question) Donaldsen International is an all-equity firm with a total market value of $120,000. The firm has 10,000 shares outstanding. Management is considering issuing $50,000 of debt at an interest rate of 6.5 percent and using the proceeds to repurchase shares. It is felt that the company will have earnings before interest and taxes (EBIT) of $22,000 if the economy is normal, $12,000 if it is in recession, and $30,000 if the economy booms. Ignore taxes. How many shares will the firm repurchase if the debt is issued?

a. 6,000 shares b. 4,667 shares c. 5,000 shares d. 3,500 shares e. 4,167 shares