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need help with calculating EPS in dollars and change in eps% Fujita, Inc., has no debt outstanding and a total market value of $222,000. Earnings
need help with calculating EPS in dollars and change in eps%
Fujita, Inc., has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Assume the company has a tax rate of 21 percent, a market-to-book ratio of 1.0, and the stock price remains constant. a. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enters a recession. b. Repeat part (a) assuming that the company goes through with recanitalization. (Use cells A6 to B13 from the given information to complete this question.) Step by Step Solution
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