Fowler, Inc., has no debt outstanding and a total market value of $240,000. 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 18 percent higher. If there is a recession, then EBIT will be 20 percent lower. The firm is considering a debt issue of $150,000 with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 15,000 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios. See the Diagram for the answer format.

(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued.

Recession EPS: _________

Normal EPS: __________

Expansion EPS: __________

a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign.)

Recession: _________

Expansion: __________

b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization.

Recession EPS: _________

Normal EPS: __________

b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign.

Recession: _________

Expansion: __________