Question

5)Harpoon is an unlevered firm. It has expected earnings of $570,000 and a market value of equity of $5,020,000. The firm is planning to issue $2,560,000 of debt at 6.4 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?

A)15.45%

B)15.71%

C)15.90%

D)16.28%

E)16.51%

6)Rockport is an unlevered firm with a total market value of $5,700,000 with 300,000 shares of stock outstanding. The firm has expected EBIT of $420,000 if the economy is normal and $680,000 if the economy booms. The firm is considering a $2,400,000 bond issue with an attached interest rate of 6.2 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms?

A)$3.38

B)$3.29

C)$3.06

D)$2.82

E)$2.67

Answer 1