Angela's Quilt Shop Is Currently an All Equity Firm That

Multiple Choice

Angela's Quilt Shop is currently an all equity firm that has 5,000 shares of stock outstanding at a market price of $32 a share. Company management has decided to issue $100,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 7.5%. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes.

A) $2.34
B) $2.40
C) $2.44
D) $2.47
E) $2.51