Answered step by step
Verified Expert Solution
Question
1 Approved Answer
I need b-1 and b-2, my answers there are wrong Pendergast, Inc., has no debt outstanding and a total market value of $240,000. Earnings before
I need b-1 and b-2, my answers there are wrong
Pendergast, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 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 20 percent lower. Pendergast is considering a $150,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 15,000 shares outstanding. Pendergast has a tax rate of 35 percent. a-1 Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Round your answers to 2 decimal places. (e.g., 32.16)) EPS Recession Normal Expansion $ $ 1.13 1.33 a-2 Calculate the percentage changes in EPS when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign.) Percentage changes in EPS Recession -20 % Expansion 18 % b-1 Assume that the company goes through with recapitalization. Calculate earnings per share under each of the three economic scenarios assuming the company goes through with recapitalization (Round your answers to 2 decimal places. (0.g., 32.16)) EPS 0.27 Recession Normal Expansion b-2 Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) Percentage changes in EPS Recession Expansion Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started