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Fujita, Incorporated, has no debt outstanding and a total market value of $ 3 8 2 , 5 0 0 . Earnings before interest and
Fujita, Incorporated, has no debt outstanding and a total market value of $ Earnings before interest and taxes, EBIT, are projected to be $ if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be percent higher. If there is a recession, then EBIT will be percent lower. The company is considering a $ debt issue with an interest rate of percent. The proceeds will be used to repurchase shares of stock. There are currently shares outstanding. Ignore taxes for questions a and b Assume the company has a markettobook ratio of and the stock price remains constant.
a Calculate return on equity ROE under each of the three economic scenarios before any debt is issued. Do not round intermediate calculations and enter your answers as a percent rounded to decimal places, eg
a Calculate the percentage changes in ROE when the economy expands or enters a recession. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to decimal places, eg
b Assume the firm goes through with the proposed recapitalization. Calculate the return on equity ROE under each of the three economic scenarios. Do not round intermediate calculations and enter your answers as a percent rounded to decimal places, eg
b Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to decimal places, eg
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