Fujita, Incorporated, has no debt outstanding and a total market value of $$382,500.$ Earnings before interest and taxes, EBIT, are

projected to be $$52,000$ if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be $14$ percent

higher. If there is a recession, then EBIT will be $23$ percent lower. The company is considering a $$190,000$ debt issue with an interest

rate of $7$ percent. The proceeds will be used to repurchase shares of stock. There are currently $8,500$ shares outstanding. Ignore

taxes for questions $($a$)$ and $($b$).$ Assume the company has a market$-$to$-$book ratio of $1\mathrm{.}0$ and the stock price remains constant.

I suggest putting numbers into a spreadsheet so you can easily change numbers to calculate the answers required. I didn't

and just used a calculator and the "store" number feature, and after adjusting all of these numbers to derive answers, I

wished I used a spreadsheet instead.

Market value of equity $/$ shares outstanding $=$ price per share $($hmm$...$ do you need this info?$)$

Since market value $=$ book value of equity $($a $1\mathrm{.}0$ ratio of market to book$),$ this means that equity on the balance sheet is the

same as market value

ROE$=$ net income $/$ book value of equity

EBIT $-$ Interest $=$ EBT

$EB{T}^{**}(1-$tax rate$)=$ net income $($remember$,$ the authors say to ignore taxes so assume the tax rate is zero for $($a$)$ and $($b$)$ but

remember taxes for $($c$))$

Number of shares bought back with the recapitalization $=$ amount of debt issued $/$ price per share

Interests expense $=$ amount of debt issued $*$ interest rate

Percent change in ROE $=$ ROE under expansion $($or recession$)/$ ROE in normal state $-1.$ NOTE: while this is the way the

authors like to calculate percentage change in ROE, normally if you are calculating percent change in a ratio $($a percent$)$ you

should simply take the ROE under the new state and subtract the ROE under the original state.

a$-1.$ Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued.

Note: Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

a$-2.$ Calculate the percentage changes in ROE 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$.,32\mathrm{.}16.$

b$-1.$ Assume the firm goes through with the proposed recapitalization. Calculate the return on equity, ROE, under each of the three

economic scenarios.

Note: Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

b$-2.$ Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy

expands or enters a recession.

Note: A neative answer should be indicated bv a minus sian. Do not round intermediate calculations and enter vour answers as a