Fujita, Incorporated, has no debt outstanding and a total market value of $320,000. Earnings before interest and taxes, EBIT, are projected to be $47,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 19 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $165,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. The company has a tax rate of 25 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., 32.16.

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 2 decimal places, e.g., 32.16.

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

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

b-2. Given the recapitalization, 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 2 decimal places, e.g., 32.16.

\begin{tabular}{|c|c|} \hline \multicolumn{2}{|l|}{ a-1. Recession EPS } \\ \hline Normal EPS & \\ \hline Expansion EPS & \\ \hline a-2. Recession percentage change in EPS & % \\ \hline Expansion percentage change in EPS & % \\ \hline b-1. Recession EPS & \\ \hline Normal EPS & \\ \hline b-2. Expansion EPS & \\ \hline Recession percentage change in EPS & % \\ \hline \end{tabular}