Music City, Inc., has no outstanding debt and its total market value is $200,000. Earnings before interest and taxes, EBIT, is projected at $26,000, assuming normal economic conditions. If there is a strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a debt issue of $65,000 with an interest rate of 6 percent. The funds raised will be used to buy back shares. There are currently 10,000 shares outstanding. The company has a tax rate of 35 percent. Assume that the stock price is constant.

a-1. Calculate earnings per share (EPS) in each of the three economic scenarios before issuing debt. (Do not round intermediate calculations. Enter your answer to two decimal places, for example, 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated with a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to the nearest integer, for example, 32.) b-1. Calculate earnings per share (EPS) in each of the three economic scenarios, assuming that the company undergoes recapitalization. (Do not round intermediate calculations. Enter your answer to two decimal places, for example, 32.16.) b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated with a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to two decimal places, for example, 32.16.)