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Southern Wind is an all-equity firm with 24,100 shares of stock outstanding and a total...

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Accounting

Southern Wind is an all-equity firm with 24,100 shares of stock outstanding and a total market value of $370,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $35,000 if the economy is normal, $21,200 if the economy is in a recession, and $48,800 if the economy booms. Ignore taxes. Management is considering issuing $93,400 of debt with an interest rate of 8 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?

Multiple Choice

  • $2.29

  • $1.53

  • $1.99

  • $2.65

  • $2.49

Answer & Explanation Solved by verified expert
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