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Southern Wind is an all-equity firm with 26,500 shares of stock outstanding and a total market...

Southern Wind is an all-equity firm with 26,500 shares of stock outstanding and a total market value of $376,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $38,000 if the economy is normal, $23,600 if the economy is in a recession, and $52,400 is the economy booms. Ignore taxes. Management is considering issuing $95,200 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?

Answers: $2.56, $2.07, $2.73, $1.63, $3.36

Solutions

Expert Solution

SEE I HAVE PRESENTED ALL THREE CASES.

THE ANSWER ASKED FOR BOOM PERIOD IS NOT GETTING TALLIED

JUST CHECK AT YOUR END

IT TALLIES WITH NORMAL ECONOMY

SEE IMAGE

ANY DOUBTS, FEEL FREE TO ASK

jeff jeffy answered 2 years ago
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