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Fujita, Incorporated, has no debt outstanding and a total market value of $356,900. Earnings before interest and taxes, EBIT, are projected to be $50,000 if
Fujita, Incorporated, has no debt outstanding and a total market value of $356,900. Earnings before interest and taxes, EBIT, are projected to be $50,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 0.16 percer higher. If there is a recession, then EBIT will be 0.25 percent lower. The firm is considering a debt issue of $180,000 with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,300 shares outstanding. The firm h a tax rate 23 percent. Assume the stock price is constant under all scenarios. 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 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 percent rounded to 2 decimal places, e.g., 32.16
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