Kaelea, Inc., has no debt outstanding and a total market value of $90,000. Earnings before interest and taxes, EBIT, are projected to be $8,900 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 24 percent higher. If there is a recession, then EBIT will be 31 percent lower. Kaelea is considering a $29,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,500 shares outstanding. Assume Kaelea has a tax rate of 30 percent. Round to two decimal points.

a)Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued.

b) Calculate the percentage changes in EPS when the economy expands or enters a recession.

Assume Kaelea goes through with recapitalization.

a) Calculate earnings per share, EPS, under each of the three economic scenarios after the b) Calculate the percentage changes in EPS when the economy expands or enters a recession.