Shelden Fabricators is currently an all-equity firm that has 15,000 shares of stock outstanding at

a market price of $12.50 a share. Company management is considering issuing $50,000 worth of debt and

use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 9%.

Ignoring taxes:

a) What are the earnings per share at the break-even level of earnings before interest and taxes?

b) What would the EPS be if they did NOT refinance (no debt or share repurchase) and the EBIT

was equal to the break-even EBIT you determined in a)?

c) If EBIT was expected to be $10,000 should they proceed with the refinancing? Explain.

d) How many shares would be repurchased and how many would still be outstanding if they

proceeded with the refinancing?

e) What would be the value of the firm before the financing and after the financing?