A Firm Is All Equity with 5,000 Shares Outstanding Worth

Multiple Choice

A firm is all equity with 5,000 shares outstanding worth $7 each.They are planning on issuing $10,000 of new perpetual debt at the 8% market rate of interest.The effective tax rate is 25%.What is the change in equity value if they make the debt for equity exchange?

A) $.50 per share
B) $200
C) $800
D) $.16 per share