Minion, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest...
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Minion, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-1. Recession EPS $ 2.24 Normal EPS $ 3.20 Expansion EPS $ 3.52 a-2. Recession percentage change in EPS -30.00 % Expansion percentage change in EPS 10.00 % b-1. Recession EPS $ 3.58 Normal EPS $ 5.50 Expansion EPS $ 6.14 b-2. Recession percentage change in EPS -34.91 % Expansion percentage change in EPS 11.64 % Minion, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-1. Recession EPS $ 2.24 Normal EPS $ 3.20 Expansion EPS $ 3.52 a-2. Recession percentage change in EPS -30.00 % Expansion percentage change in EPS 10.00 % b-1. Recession EPS $ 3.58 Normal EPS $ 5.50 Expansion EPS $ 6.14 b-2. Recession percentage change in EPS -34.91 % Expansion percentage change in EPS 11.64 %
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Fundamentals of corporate finance
ISBN: 978-0078034633
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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