Crowded Fund Capital Is an All-Equity Firm with a Total

Multiple Choice

Crowded Fund Capital is an all-equity firm with a total market value of $1,015,000 and 20,000 shares of stock outstanding.Management is considering issuing $300,000 of debt at an interest rate of 5.5 percent and using the proceeds on a stock repurchase.As an all-equity firm, management believes its earnings before interest and taxes (EBIT) will be $266,000 if the economy is normal, $110,000 if it is in a recession, and $387,000 if the economy booms.Ignore taxes.What will the EPS be if the economy falls into a recession and the firm maintains its all-equity status?

A) $13.30
B) $5.50
C) $19.35
D) $11.50
E) $12.33