Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Minion, Inc., has no debt outstanding and a total market value of $211,875. Earnings before interest and taxes, EBIT, are projected to be $14,300 if

image text in transcribed
image text in transcribed
Minion, Inc., has no debt outstanding and a total market value of $211,875. Earnings before interest and taxes, EBIT, are projected to be $14,300 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. The company is considering a $33,900 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,500 shares outstanding. Assume the company has a tax rate of 21 percent a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a- Calculate the percentage changes in EPS when the economy expands or enters a 2. recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.) b-1.Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b- Calculate the percentage changes in EPS when the economy expands or enters a 2. recession assuming recapitalization has occurred. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) answers as a percent rounded to 2 decimal places, e.g., 32.16. a-1. Recession EPS Normal EPS Expansion EPS a-2. Recession percentage change in EPS Expansion change in EPS b-1. Recession EPS Normal EPS Expansion EPS Recession percentage change in EPS Expansion change in EPS

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Production And Operations Analytics

Authors: Steven Nahmias, Tava Lennon Olsen

8th Edition

1478639261, 9781478639268

More Books

Students also viewed these Finance questions

Question

8. Describe how cultural spaces are formed.

Answered: 1 week ago