Problems & Excel Simulations - Chapter 13 Saved Help Save & Exit Check 2 10 points Kaelea, Inc., has no debt outstanding and a total market value of $141,000. Earnings before interest and taxes, EBIT, are projected to be $9,100 if economic conditions are normal, if there is strong expansion in the economy, then EBIT will be 21 percent higher, If there is a recession, then EBIT will be 34 percent lower . The company is considering a $44,100 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,700 shares outstanding. Assume the company has a market-to-book ratio of 1.0. a. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued, assuming no taxes. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g. 32.16.) Book Hint Print References ROE Recession Normal Expansion 0.84% 1.28% 1.55% b. Calculate the percentage changes in ROE when the economy expands or enters a RAFA ARRIRE Indah..... b. Calculate the percentage changes in ROE when the economy expands or enters a recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.) Recession Expansion %AROE -34.001% 21.00% cos Assume the firm goes through with the proposed recapitalization and no taxes. C. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) EPS Recession Normal Expansion 0.78% 1.41% 1.80 % d. Calculate the percentage changes in ROE for economic expansion and 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.) %AROE Recession Expansion -44.87% 22.721% Assume the firm has a tax rate of 40 percent. e. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and 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.) EPS Recession Normal Expansion % % % %AROE % Recession Expansion 9% f. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (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.) EPS % Recession Normal Expansion % % WAROE % Recession Expansion %
