Pendergast, Inc., has no debt outstanding and a total market value of $100,000. Earnings before interest and taxes, EBIT, are projected to be $8,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 24 percent higher. If there is a recession, then EBIT will be 31 percent lower. Pendergast is considering a $35,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,000 shares outstanding. Ignore taxes for this problem.

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).)

	EPS
Recession	$
Normal	$
Expansion	$

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

	%EPS
Recession	%
Expansion	%

Requirement 2:

Assume Pendergast 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).)

	EPS
Recession	$
Normal	$
Expansion	$

(b)	Calculate the percentage changes in EPS when the economy expands or enters a recession.(Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

	%EPS
Recession	%
Expansion	%