Following the borrowing of $12 and subsequent share repurchase,the expected earnings per share for RC is closest to:

Question

Quizplus · Accepted Answer

A) EPS = (EBIT)/Shares outstanding = ($6M)/5M shares = $1.20 EPS (unlevered)
$12 million/$12 per share = 1 million shares repurchased, so 5M shares initially - 1M shares repurchased = 4M total shares outstanding.
EPS = (EBIT - Interest)/Shares outstanding = ($6M - .06 × $12)/4M shares = $1.32 EPS

Following the Borrowing of $12 and Subsequent Share Repurchase,the Expected