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QUESTION 2 Cloudy Corporation has no debt outstanding and a total market value of RM175.000 lungs before interest and taxes (EBIT) are projected to be
QUESTION 2 Cloudy Corporation has no debt outstanding and a total market value of RM175.000 lungs before interest and taxes (EBIT) are projected to be RM16,000 if economic nditions are normal. If there is strong expansion in the economy, then EBIT will be 35 percent higher. If there is a recession, then EBIT will be 50 percent lower North Sides considering a RM70,000 debt issue with a 7 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2.500 shares outstanding, North Side has a tax rate of 34 percent Required: Calculate the carnings per share (EPS) under each of these economic scenarios assuming that the company goes through with recapitalization (10 marks) (CLO2.PL06:03)
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