"Fujita, Inc., has no debt outstanding and a total market$$value of $$222,000.$ Earnings before interest and taxes, EBIT, are projected to be$$$$18,000$ if economic conditions are normal. If there is strong expansion in the economy,$$then EBIT will be $25$ percent higher. If there is a recession, then EBIT will be$30$ percent lower. The company is considering a $$60,000$ debt issue with an interest$$rate of $7$ percent. The proceeds will be used to repurchase shares of stock. There are$$currently $7,400$ shares outstanding. Assume$$the company has a tax rate of $21$ percent, a market$-$to$-$book ratio of $1\mathrm{.}0,$ and the stock$$price remains constant.

a$.$ Calculate earnings per share $($EPS$)$ under each of the three economic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enters a recession.

b$.$ Repeat part $($a$)$ assuming that the company goes through with recapitalization." Market value $$222,000$

EBIT $$18,000$

Expansion EBIT $25\%$

Recession EBIT $30\%$

Debt issue $$60,000$

Interest rate $7\%$

Shares outstanding $7,400$

Tax rate $21\%$