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Money Inc. has no debt outstanding and a total market value of $ 1 5 0 , 0 0 0 . EBIT is projected to

Money Inc. has no debt outstanding and a total market value of $150,000. EBIT is projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 20 percent lower. Money is considering a $90,000 debt issue with an 6 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem.
a-1. Calculate EPS under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)
EPS
Recession $
Normal $
Expansion $
a-2. 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. Omit % sign in your response.))
Percentage changes in EPS
Recession
%
Expansion
%
b-1. Assume that the company goes through with recapitalization. Calculate EPS under each of the three economic scenarios. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)
EPS
Recession $
Normal $
Expansion $
b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Omit % sign in your response.))
Percentage changes in EPS
Recession
%
Expansion
%

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