Beckett Inc. has no debt outstanding and a total market value of $280,000. Earnings before interest and taxes, EBIT, are projected to be $21,000 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. Beckett is considering a debt issue of $90,000 with an interetst rate of 6 percent. The proceeds will be used to repurchase share of stock. There are currently 5,000 shares outstandings. Ignore taxes for this problem.

Repeat parts (a) in Problem 1 assuming Beckett has a tax rate of 35 percent.