Intro

Depending on the demand for your product, your sales are expected as follows:

Demand	Prob.	Sales
Low	0.2	48
Medium	0.6	60
High	0.2	77

EBIT is expected to be 23% of sales and the average tax rate is 34. There is no debt, the market value of equity is 500 and there are 40 shares outstanding.

The company is thinking of borrowing $250 at an interest rate of 3% to repurchase its shares at the current market value.

Part 1

What is the standard deviation of ROIC before the recapitalization?

Part 2

What is the standard deviation of EPS before the recapitalization?

Part 3

What is the standard deviation of EPS after the recapitalization?