B E F G - J K 4 5 6 1. Calculate the earnings per share (EPS) under each of the three scenarios before any debt is issued. Assume a 30% tax rate. 2. Calculate the percentage change in EPS when the economy expands or enters a recession. Assume a 30% tax rate. 7 8 9 $250,000 $25,000 20% 35% $96,000 Solution template: No debt with taxes EBIT Interest Taxes $ $ Market value EBIT Expansion-EBIT Recession-EBIT Debt issue Interest rate Shares outs ding Tax rate $ 10 11 12 6% NI $ $ $ $ $ $ $ $ $ 13 6,000 30% EPS Change EPS% 14 % % 15 16 17 With debt and taxes Share price = Shares repurchased = $ 18 19 20 $ $ $ 21 # # 22 23 EBIT Interest Taxes NI EPS Change EPS% $ $ $ $ $ $ $ $ $ 24 25 % % % 26 27 28 29