Greenwich Company is an unlevered firm with a total market value of $25,600,000 with 1,200,000 shares...

Greenwich Company is an unlevered firm with a total market value of $25,600,000 with 1,200,000 shares of stock outstanding. The firm has expected EBIT of $1,800,000 if the economy is normal and $2,650,000 if the economy booms. The firm is considering a $5,000,000 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?

$2.30

$2.67

$2.15

$2.42

$2.74

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Expert Solution


Market value	25,600,000
No of shares	1,200,000
Share Price	25600000/1200000
Share Price	21.33

Bond Issued	5,000,000
No of shares redeemed	=5000000/21.33
	234,412

Remaining shares	965,588

EBIT	2,650,000
Less Interest-5000000*6.2%	(310,000)
Earnings for equity	2,340,000
No of shares	965,588
Earning per share	2340000/965588
Earning per share	2.42

So option D is correct

jeff jeffy answered 1 year ago

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