Estimate the effect on earnings per share of the action, Finance Basics

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Estimate the effect on earnings per share of the action

Problem

JR Computers, a firm that manufactures and sells personal computers is an all equity firm with 100,000 shares outstanding, $10 million in earnings after taxes and a market value of $ 150 million. Assume that this firm borrows $60 million at an interest rate of 8% and buys back 40,000 shares, using the funds. If the firm's tax rate is 50%, estimate the effect on earnings per share of this action.

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Finance Basics: Estimate the effect on earnings per share of the action

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Finance Basics: Estimate the effect on earnings per share of the action

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