ROE..

With explanation PLEASE!!!

Beckett, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. Beckett is considering a $65,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0.

a1- Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued

a2- Calculate the percentage changes in ROE when the economy expands or enters a recession.

Now Assume the firm goes through with the proposed recapitalization:

b1- Calculate the return on equity (ROE) under each of the three economic scenarios.

b2- Calculate the percentage changes in ROE when the economy expands or enters a recession

Finally, Assume the firm has a tax rate of 35 percent.

c1 - Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued

c2- Calculate the percentage changes in ROE when the economy expands or enters a recession

c3- Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization.

c4- Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession.