What will the earnings per share be after the repurchase

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1. Pinterest company is an unlevered firm with a total market value of $1,130,000 with 50,000 shares of stock outstanding. The firm has expected EBIT of $56,000 if the economy is normal and $129,000 if the economy booms. The firm is considering a $150,000 bond issue with an attached interest rate of 6 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?

$2.77

$2.51

$2.33

$2.08

$1.84

2. Gorham Company has debt with both a face and a market value of $70,000. This debt has a coupon rate of 7 percent and pays interest annually. The expected earnings before interest and taxes are $10,400, the tax rate is 21 percent, and the unlevered cost of capital is 11 percent. What is the firm's cost of equity?

21.08%

22.41%

23.15%

24.76%

25.11%

Reference no: EM131989616

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