Boston Lumber is unlevered with 222 shares outstanding and earnings before interest and taxes, or EBIT, of 750. Corporate earnings are taxed at a rate of 31%. Suppose that Boston Lumber makes a decision to partition its assets into debt and equity by using the newly raised debt capital to buy back a portion of the stock. The firm issues $1550 of debt at a cost of 8.65%. The partition does not change EBIT but reduces the number of shares outstanding to 147. Which of the following is Boston Lumber's EPS after the partition? $1.91 $2.89 $5.10 $2.33
Boston Lumber is unlevered with 222 shares outstanding and earnings before interest and taxes, or EBIT, of 750. Corporate earnings are taxed at a rate of 31%. Suppose that Boston Lumber makes a decision to partition its assets into debt and equity by using the newly raised debt capital to buy back a portion of the stock. The firm issues $1550 of debt at a cost of 8.65%. The partition does not change EBIT but reduces the number of shares outstanding to 147. Which of the following is Boston Lumber's EPS after the partition? $1.91 $2.89 $5.10 $2.33
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Boston Lumber is unlevered with 222 shares outstanding and earnings before interest and taxes, or
EBIT, of 750. Corporate earnings are taxed at a rate of 31%. Suppose that Boston Lumber makes a
decision to partition its assets into debt and equity by using the newly raised debt capital to buy back a
portion of the stock. The firm issues $1550 of debt at a cost of 8.65%. The partition does not change
EBIT but reduces the number of shares outstanding to 147. Which of the following is Boston Lumber's
EPS after the partition?
$1.91
$2.89
$5.10
$2.33
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