Question
Southern Wind is an all-equity firm with 23,300 shares of stock outstanding and a total market value of $368,000. Based on its current capital structure,
Southern Wind is an all-equity firm with 23,300 shares of stock outstanding and a total market value of $368,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the economy is in a recession, and $47,600 if the economy booms. Ignore taxes. Management is considering issuing $92,800 of debt with an interest rate of 6 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 booms?
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