25 Fujita, Incorporated, has no debt outstanding and a total market value of $395,600 Earnings before interest and taxes, EBIT, are projected to be $53,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 13 percent higher If there is a recession, then EBIT will be 22 percent lower The company is considering a $195,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,600 shares outstanding Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 10 and the stock price remains constant a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession Note: 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. Assume the firm goes through with the proposed recapitalization Calculate the return on equity, ROE, under each of the three economic scenarios Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. Note: 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 ROE Normal ROE Expansion ROE a-2. Recession percentage change in ROE Expansion percentage change in ROE b-1. Recession ROE Normal ROE Expansion ROE b-2. Recession percentage change in ROE Expansion percentage change in ROE % % % % % % % % %

Fujla, Incorporated, has no debt outstanding and a total morket value of $395,600 Earnings before interest and taxes, EBIT, are projected to be $53,000 if economic condiuons are normal if there is strong expansion in the economy. then EBIT will be 13 percent higher If there is a recession, then EBIT will be 22 percent lower The company is considering a $195,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 8.600 shares outstanding ignore taxes for questions (a) and (b) Assume the company has a market-to-book ratio of 10 and the stock price remains constant. a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.9-, 32.16. a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession Note: 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, 3216 . b-1. Assume the firm goes through with the proposed recapitalization Calculate the return on equity, ROE, under each of the three economic scenarios Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.9, 32.16 . b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession Note: A negotive 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. 3216