Solved: Effect of stock repurchase with debt on eps, Accounting Basics

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Effect of stock repurchase with debt on eps

Problem:

Popeye's is currently unlevered with 2,000 shares outstanding and assets valued at $50,000. The company expects operating income in the current period to be $6,000. Suppose that the company can exchange 400 shares of stock for $10,000 in debt paying 10% interest. From the standpoint of EPS, how would the exchange be wise, assuming no taxes.

Please show calculations.

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Accounting Basics: Effect of stock repurchase with debt on eps

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Accounting Basics: Effect of stock repurchase with debt on eps

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