Charny Inc. has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $36.000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20% higher. If there is a recession, then EBIT will be 25% lower. Charny is considering a $155.000 debt issue with an interest rate of 6%. The proceeds will be used to repurchase shares of stock. There are currently 6,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. 0-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Enter your answer as a percentoge rounded to 2 decimal places.) o-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (Do not round intermediate calculations. Negative answers should be indicated by a minus sign. Enter the answers as a percent rounded to the nearost whole number.) Assume the firm goes through with the proposed recapitalization. b-1. Calculate the return on equity (ROE) under each of the three economic scenatios. (Enter your answer as a percentage rounded to 2 decimal places.) Assume the firm goes through with the proposed recapitalization. b-1. Calculate the return on equity (ROE) under each of the three economic scenarios. (Enter your answer as o percentage rounded t 2 decimal places.) b-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (Nogative onswers should be indicated by a minus sign. Enter your answer as a percentage rounded to 2 decimal ploces.) Assume the firm has a tax rate of 35 percent. c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (Do not round intermediate colculotions. Negotive onswers should bo indicated by a minus sign. Enter your answer as a percentoge rounded to 2 decimal places.) c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (Do not round intermediate calculations. Negative answers should be indicated by a minus sign. Enter your answer as a percentage rounded to 2 decimal places.) c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) c-4. Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.)
