Problem 16-2 EBIT, Taxes, and Leverage Fujita, Incorporated, has no debt outstanding and a total market value of $408,900. Earnings before interest and taxes, EBIT, are projected to be $54,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 13 percent higher. If there is a recession, then EBIT will be 21 percent lower. The company is considering a $200,000 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,700 shares outstanding. The company has a tax rate of 22 percent. Assume a market-to-book ratio of 1.0 and the stock price remains constant. 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-2. Calculate the percentage changes in EPS when the economy expands or enters a 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 2 decimal places, e.g., 32.16.) b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 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 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.) a-1. Recession EPS $ 4.90 a-1. Normal EPS $ 6.21 a-1. Expansion EPS $ 7.01 a-2. Recession percentage change in EPS % a-2. Expansion percentage change in EPS % b-1. Recession EPS b-1. Normal EPS b-2. Expansion EPS b.2. Recession percentage change in EPS % b-2. Expansion percentage change in EPS %