Question

Northern Wood Products is an all-equity firm with 17,500 shares of stock outstanding and a total market value of $357,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $28,500 if the economy is normal, $16,000 if the economy is in a recession, and $41,000 if the economy booms. Ignore taxes. Management is considering issuing $89,500 of debt with an interest rate of 7 percent. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession

Answer 1

$0.91

Step-by-step explanation:

Calculation to determine What will the earnings per share be if the debt is issued and the economy is in a recession

Using this formula

Earnings per share =Economy in a recession/Shares of stock outstanding

Let plug in the formula

Earnings per share =$16,000/17,500

Earnings per share =$0.91

Therefore What will the earnings per share be if the debt is issued and the economy is in a recession is $0.91