Health and Wealth Company is financed entirely by common stock which is priced to offer a 15% expected return. The common stock price is $40/share. The earnings per share is expected to be $6. If the company repurchases 25% of the common stock and substitutes an equal value of debt yielding 6%, what is the expected value of earnings per share after refinancing? (Ignore taxes.)
A) $6.00
B) $7.20
C) $7.52
D) None of the above
Answers: 2
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