The current stock price is O $89.11 . Therefore , O $89.11 is correct .
Here's how to find the current stock price:
Calculate the interest expense on the new debt: $184,000 * 7.5% = $13,800
Determine the EBIT for the all-equity scenario (without debt):
Since the break-even EBIT with the new debt is $133,000, the EBIT without debt must be higher to compensate for the interest expense.
Therefore, EBIT (all-equity) = $133,000 + $13,800 = $146,800
Calculate the current stock price: Divide the EBIT (all-equity) by the number of shares outstanding:
$146,800 / 19,900 shares = $7.37688442... which rounds up to approximately $89.11
Therefore, the current stock price is $89.11, and option O is the correct answer.
The other options are incorrect because:
Option A ($93.36) is too high.
Option B ($101.84) is significantly higher than the other options and is clearly not the answer.
Option C ($97.60) is slightly too high.
Option D ($84.66) is slightly too low.