Barns Brother's capital structure is 100% equity and 0% debt.

Currently there are 100,000 shares of common stock outstanding.

Barns has decided to change its capital structure by buying back shares of common stock in a recapitalization effort.

The firm’s Share price is $40.00 and its EPS is $3.00.

The company can borrow $1,000,000 at 9%.

EBIT is expected to be $500,000 and the tax rate is 40%.

How much will the capitalization increase or decrease shareholder wealth?

$0.28 per share

$0.00 per share

$0.36 per share

$0.17 per share

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