Kaelea, Inc., has no debt outstanding and a total market value of $125,000. Earnings before interest and taxes, EBIT, are projected to be $10,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. Kaelea is considering a $42,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 6,250 shares outstanding. Assume Kaeleahas a tax rate of 35 percent.

Requirement 1:(a)Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued.(Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)

EPSRecession$Normal$Expansion$

(b)Calculate the percentage changes in EPS when the economy expands or enters a recession.(Do not round intermediate calculations.Negative amounts should be indicated by a minus sign.)

%EPSRecession%Expansion%

Requirement 2:Assume Kaelea goes through with recapitalization.

(a)Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization.(Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)

EPSRecession$Normal$Expansion$

(b)Calculate the percentage changes in EPS when the economy expands or enters a recession.(Do not round intermediate calculations.Negative amounts should be indicated by a minussign. Round your answers to 2 decimal places (e.g., 32.16).)

%EPSRecession%Expansion%