1. Pinterest company is an unlevered firm with a total market value of $1,130,000 with 50,000 shares of stock outstanding. The firm has expected EBIT of $56,000 if the economy is normal and $129,000 if the economy booms. The firm is considering a $150,000 bond issue with an attached interest rate of 6 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms?
$2.77
$2.51
$2.33
$2.08
$1.84
2. Gorham Company has debt with both a face and a market value of $70,000. This debt has a coupon rate of 7 percent and pays interest annually. The expected earnings before interest and taxes are $10,400, the tax rate is 21 percent, and the unlevered cost of capital is 11 percent. What is the firm's cost of equity?
21.08%
22.41%
23.15%
24.76%
25.11%