Q1) Suppose you work for Shah Corporation as a Chief Financial Officer (CFO). The firm has no debt outstanding. Total market value of the firm is $5,977,000. Earnings before interest and taxes, EBIT, are projected to be $393,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20% higher. If there is a recession, then EBIT will be 30% lower. Shah Corporation is considering a $1,175,000 debt issue with a 6% interest rate. The proceeds will be used to repurchase shares of stock. There are currently 96,000 shares outstanding. The tax rate is 35%. Based on the given information, please answer questions a and b.

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 recapitalization. What do you observe?

Q2) Suppose you work for Shah Corporation as a Chief Financial Officer (CFO). Also suppose the stock of Shah Corporation is currently trading at $25 per share.

a) If company issued a 20% stock dividend, what will its new price be?

b) If company does a 3:2 stock split, what will its new share price be?

c) If company does a 1:3 reverse split, what will its new share price be?

Q3) Suppose you work for Lenzie Corporation as a Chief Financial Officer (CFO). You are trying to decide whether to lease or buy a new production equipment. Your calculations show that acquisition of the system will have a positive NPV. The system costs $2,000,000 and qualifies for a 25% CCA rate. The equipment will have a $295,000 salvage value in 5 years. Lenzie Corporation's tax rate is 35%, and the firm can borrow at 7%. Southtown Leasing Company has offered to lease the drilling equipment to Lenzie Corporation for payments of $400,000 per year. Southtown's policy is to require its lessees to make payments at the start of the year. Based on the given information, what is the NAL for Lenzie Corporation?