Sinclair, Inc. is a levered firm with assets valued at $10,000 and has debt issued at 10% interest. Sinclair pays tax at the rate of 34%. The firm faces EBIT scenarios of recession and boom. {Note: EBIT = earnings before interest and tax, $ Interest = dollar amount of interest owed on the debt, NIBT = net income before tax, NI = net income, EPS = earnings per share}. Assume that firms with zero or negative NIBT pay zero taxes.

a.

$2,500

b.

$5,000

c.

$6,500

d.

$7,500

e.

4000

EBIT SINTEREST NIBT TAXES EPS BOOM $900 $1.32 RECESSION $200 $550