Repeat parts (a) and (b) in Problem 1 assuming the company has a tax rate of 21

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Repeat parts (a) and (b) in Problem 1 assuming the company has a tax rate of 21 percent.


Problem 1

a. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession.
b. Repeat part (a) assuming that the company goes through with recapitalization. What do you observe? Assume the stock price remains constant.

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Related Book For  book-img-for-question

Essentials of Corporate Finance

ISBN: 978-1260013955

10th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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