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Fujita, Incorporated, has no debt outstanding and a total market value of $ 3 3 2 , 1 0 0 . Earnings before interest and

Fujita, Incorporated, has no debt outstanding and a total market value of $332,100.
Earnings before interest and taxes, EBIT, are projected to be $48,000 if economic
conditions are normal. If there is strong expansion in the economy, then EBIT will be 18
percent higher. If there is a recession, then EBIT will be 29 percent lower. The
company is considering a $170,000 debt issue with an interest rate of 7 percent. The
proceeds will be used to repurchase shares of stock. There are currently 8,100 shares
outstanding. The company has a tax rate of 21 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. (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. (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. (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. (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.)
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