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Intro Zambezi Corp. expects EBIT to vary with the state of the economy as follows: State of economy EBIT (in $ million) Boom 560 Base

Intro

Zambezi Corp. expects EBIT to vary with the state of the economy as follows:

State of economy EBIT (in $ million)
Boom 560
Base 125
Bust -200

Zambezi doesn't have any long-term debt and has 81 million shares outstanding, currently trading at $8.42. Because of political connections, it doesn't pay any taxes.

Part 1

What are the expected earnings per share (EPS) during a boom?

Correct

Since the company doesn't have any debt, it doesn't pay interest. It also doesn't pay taxes. Therefore, EBIT and net income are the same in this case:

EPS=Net incomeNumber of shares outstanding=56081=EPS=Net incomeNumber of shares outstanding=56081= 6.91

Part 2

What are the expected earnings per share (EPS) during a bust?

Correct

EPS=Net incomeNumber of shares outstanding=20081=EPS=Net incomeNumber of shares outstanding=-20081= -2.47

.

Part 3

Zambezi now issues bonds worth $33 million to buy back some shares. How many shares are outstanding after the restructuring (in million)?

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