Cross Road Realty is an all-equity firm with 50,000 shares of stock outstanding and a total market value of $744,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $126,560 if the economy is normal, $74,000 if the economy is in a recession, and $156,000 if the economy booms. Ignore taxes. Management is considering issuing $200,000 of debt at a coupon rate of 6.5 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? (Round the number of shares repurchased down to the nearest whole share)
Cross Road Realty is an all-equity firm with 50,000 shares of stock outstanding and a total market value of $744,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $126,560 if the economy is normal, $74,000 if the economy is in a recession, and $156,000 if the economy booms. Ignore taxes. Management is considering issuing $200,000 of debt at a coupon rate of 6.5 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? (Round the number of shares repurchased down to the nearest whole share)
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:Cross Road Realty is an all-equity firm with 50,000 shares of stock outstanding and a total market value of $744,000. Based on its current
capital structure, the firm is expected to have earnings before interest and taxes of $126,560 if the economy is normal, $74,000 if the
economy is in a recession, and $156,000 if the economy booms. Ignore taxes. Management is considering issuing $200,000 of debt at a
coupon rate of 6.5 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? (Round the number of shares repurchased down to the nearest whole share.)
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