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Posted on Sep 06, 2024

Ghost, Inc., has no debt outstanding and a total market value of $284,900. Earnings before interest and taxes, EBIT, are projected to be $44,000 if

Ghost, Inc., has no debt outstanding and a total market value of $284,900. Earnings before interest and taxes, EBIT, are projected to be $44,000 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 $150,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,700 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 10 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before a-2. Calculate the percentage changes in ROE when the economy expands or enters a intermediate calculations and enter your answers as a percent rounded to 2 any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) recession. (A negative answer should be indicated by a minus sign. Do not round decimal places, e.g., 32.16.) return on equity (ROE) under each of the three economic scenarios. (Do not round decimal places, e.g., 32.16.) b-1. Assume the firm goes through with the proposed recapitalization. Calculate the intermediate calculations and enter your answers as a percent rounded to 2 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. (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.) 10.971 % 15.44% 18.22% -29.ool % 18.001% 15.371% 24.83 30.70% -38.09 2364 a-1. Recession ROE Normal ROE Expansion ROE Recession percentage change in ROE Expansion percentage change in ROE a-2. b-1. Recession ROE Normal ROE Expansion RO | Recession percentage change in ROE Expansion percentage change in ROE b-2 Assume the firm has a tax rate of 22 percent. c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. Calculate the percentage changes in ROE 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.) c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-4. Given the recapitalization, calculate the percentage changes in ROE 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) c-1. Recession ROE Normal ROE Expansion ROE c-2. Recession percentage change in ROE Expansion percentage change in ROE c-3. Recession ROE Normal ROE Expansion ROE c-4. Recession percentage change in ROE Expansion percentage change in ROE