Duncan Inc. has no debt outstanding and a total market value of $490,000. EBIT, are projected to be $38,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25%higher. If there is recession, then EBIT will be 40% lower. The company is considering a $117,600debt issue with an interest rate of 8%. The proceed will be used to repurchase share of stock. There are currently 5,000 shares outstanding. Ignore taxes

Required:

a)Determine the EBIT when economy on strong expansion and recession.

b)Determine the EPS under each three economic situations before any debt issued.

c)Determine the EPS under each three economic situations after debt issued.

d)Explain your observation on part a) and part b)