Red Iron Mall Inc is an all-equity firm with 24,700 shares of stock outstanding and a total market value of $375,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $37,500 if the economy is normal, $23,200 if the economy is in a recession, and $51,800 if the economy booms. Ignore taxes. Management is considering issuing $94,900 of debt with an interest rate of 9 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

• $2.34

• $1.10

• $.59

• $.79

• $1.57

Red Iron Mall Inc is an all-equity firm with 24,700 shares of stock outstanding and a total market value of $375,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $37,500 if the economy is normal, $23,200 if the economy is in a recession, and $51,800 if the economy booms. Ignore taxes. Management is considering issuing $94,900 of debt with an interest rate of 9 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 $2.34 $1.10 $.59 $.79 $1.57