Fujita, Incorporated, has no debt outstanding and a total market value of $ 2 2 2 , 0 0 0 Earnings before interest and taxes, EBIT, are projected to be $ 1 8 , 0 0 0 if economic conditions are normal If there is strong expansion in the economy, then EBIT will be 2 5 percent higher If there is a recession, then EBIT will be 3 0 percent lower The company is considering a $ 6 0 , 0 0 0 debt issue with an i nterest rate of 7 percent The proceeds will be used to repurchase shares of stock There are currently 7 , 4 0 0 shares outstanding The company has a tax rate of 2 1 percent, a market to book ratio of 1 0 , and the stock price remains constant a 1 Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued Note Do not round intermediate calculations and round your answers to 2 decimal places, e g , 3 2 1 6 a 2 Calculate the percentage changes in EPS when the economy expands or enters a recession Note A negative answer should be indicated by a minus sign Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e g , 3 2 b 1 Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization Note Do not round intermediate calculations and round your answers to 2 decimal places, e g , 3 2 1 6 b 2 Calculate the percentage changes in EPS when the economy expands or enters a recession assuming recapitalization has occurred Note A negative answer should be indicated by a minus sign Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e g , 3 2 1 6

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Posted on May 14, 2024

Fujita, Incorporated, has no debt outstanding and a total market value of $ 2 2 2 , 0 0 0 . Earnings before interest and

Fujita, Incorporated, 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 i nterest rate of

7

percent. The proceeds will be used to repurchase shares of stock. There are currently

7, 400

shares outstanding. The company has a tax rate of

21

percent, a market

-

-

book ratio of

1.0,

and the stock price remains constant.

- 1 .

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

Note: Do not round intermediate calculations and round your answers to

2

decimal places, e

.

., 32.16 .

- 2 .

Calculate the percentage changes in EPS when the economy expands or enters a recession.

Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e

.

., 32 .

- 1 .

Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization.

Note: Do not round intermediate calculations and round your answers to

2

decimal places, e

.

., 32.16 .

- 2 .

Calculate the percentage changes in EPS when the economy expands or enters a recession assuming recapitalization has occurred.

Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to

2

decimal places, e

.

., 32.16 .

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Step: 1

a1 First lets calculate the earnings per share EPS under each of the three economic scenarios before any debt is issued Normal Economic Conditions EBI... blur-text-image