Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Wing Air, Inc. has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes (EBIT) are projected to be $25,000
Wing Air, Inc. has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes (EBIT) are projected to be $25,000 if economic conditions are normal. If the economy is strong then EBIT will be 20% percent higher. In the event of a recession, EBIT will be 35% percent lower. Wing Air is considering a $96,000 debt issue with an interest rate of 6% percent. The proceeds of which will be used to repurchase shares of stock. There are currently 6,000 shares outstanding | 1. Calculate the earnings per share (EPS) under each of the three scenarios before any debt is issued. Assume a 30% tax rate. 2. Calculate the percentage change in EPS when the economy expands or enters a recession. Assume a 30% tax rate. Market value EBIT Expansion-EBIT Recession-EBIT Debt issue Interest rate $250,000 $25,000 20% 35% $96,000 6% 6,000 30% hares outstanding Tax Rate Upload this spreadsheet semplate a with your answer Upload this Eneea
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started