Ghost, Inc., has no debt outstanding and a total market value of $265200. Earnings before interest and taxes,EBIT, are projected to be $42,000 if economic conditions are normal. If there is strong expansion in the economy ,then EBIT will be 16 percent higher. If there is a recession, then EBIT will be 27 percent lower. The company is considering a $140000 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 7500 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.

B-1. calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (round to 2 decimal places)

B-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters recession. (show as a percentage rounded to two decimal places)

Answer is complete but not entirely correct Recession EPS 3.07 Normal EPSs Expansion EPS Recession percentage change in EPS Expansion percentage change in EPS 420 4.87 -27.00 % 16.00 % 2 b- 7.07 9.50 $10.94 Recession EPS Normal EPSs b- 2 Expansion EPS Recession percentage change in EPS Expansion percentage change in EPS -26.00 % 15.00 x % Answer is complete but not entirely correct Recession EPS 3.07 Normal EPSs Expansion EPS Recession percentage change in EPS Expansion percentage change in EPS 420 4.87 -27.00 % 16.00 % 2 b- 7.07 9.50 $10.94 Recession EPS Normal EPSs b- 2 Expansion EPS Recession percentage change in EPS Expansion percentage change in EPS -26.00 % 15.00 x %