Blue & Cois an All-Equity Firm with a Total Market Value of Value

Multiple Choice

Blue & Co.is an all-equity firm with a total market value of $230 000.The firm has 25 000 shares outstanding.Management is considering issuing $100 000 of debt at an interest rate of 7 per cent and using the proceeds to repurchase shares.Management estimates that the economy will be fairly normal and thus the firm's earnings before interest and taxes (EBIT) will be $60 000.Ignore taxes.What are the anticipated earnings per share (EPS) if the debt is issued?

A) $3.20
B) $3.54
C) $3.75
D) $3.46
E) $3.82