Answer: $10.2

## Explanation **Step 1: Calculate Initial EPS** - Earnings = $45,000,000 - Shares outstanding = 4,500,000 - Initial EPS = $45,000,000 / 4,500,000 = $10.00 **Step 2: Calculate Interest Expense** - Debt raised = $25,000,000 - After-tax cost of debt = 7% - Interest expense = $25,000,000 × 7% = $1,750,000 **Step 3: Calculate New Earnings** - New earnings = Initial earnings - Interest expense - New earnings = $45,000,000 - $1,750,000 = $43,250,000 **Step 4: Calculate New Shares Outstanding** - Shares repurchased = 250,000 - New shares outstanding = 4,500,000 - 250,000 = 4,250,000 **Step 5: Calculate New EPS** - New EPS = $43,250,000 / 4,250,000 = $10.176 ≈ $10.2 **Verification**: - The company is paying $100 per share to repurchase shares - Earnings yield = $10 / $100 = 10% - Cost of debt = 7% - Positive spread of 3% explains why EPS increases from $10.00 to $10.20 Therefore, the EPS after repurchase will be closest to **$10.2**.

Author: LeetQuiz .