Charny, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. Charny is considering a $65,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0.

c-3	Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Round your answers to 2 decimal places. (e.g., 32.16)

	ROE
Recession	? %
Normal	? %
Expansion	? %

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 your intermediate calculations. Round your final answers to 2 decimal places. (e.g., 32.16))

	% change in ROE
Recession	? %
Expansion	? %