Question

Simone's Sweets is an all-equity firm that has 10,000 shares of stock outstanding at a market price of $25 per share. The firm's management has decided to issue $100,000 worth of debt at an interest rate of 9 percent. The funds will be used to repurchase shares of the outstanding stock. What are the earnings per share at the break-even EBIT

Answer 1

earnings per share is $2.25

Step-by-step explanation:

given data

share = 10000

market price = $25 per share

interest rate = 9%

debt = $100000

to find out

earnings per share

solution

we know here that at one point break EBIT, EPS under value is same

so we consider it is A

so

A/10000 = A - 100000 × 9% / 6000

so A = 22500

earning = $22500

and earnings per share = 22500 / 10000

earnings per share = $2.25