1 2 A Calibri 11 B ~ A General Xfx Fujita, Inc., has no debt outstanding and a total market value of $222,000. Earnings before interest at B C D before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 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 7,400 shares outstanding. Assume the company has a tax rate of 21 percent, a market-to-book ratio of 1.0, and the stock price remains constant. 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. Input Area: Market value $222,000 EBIT $18,000 Expansion EBIT 25% Recession EBIT 30% O Debt issue $60,000 7% 7,400 21% Interest rate 2 Shares outstanding B Tax rate 1 5 (Use cells A6 to B13 from the given information to complete this question.) 5 + E F G H Output Area: No debt with taxes Recession Normal Expansion EBIT Taxes NI EPS Change EPS% With debt and taxes Share price Shares repurchased EBIT Interest EBT Taxes B NI 4 EPS Change EPS% 6 Recession Normal Expansion +++