Advanced Placement (AP), 23.08.2021 01:00 klafleur18

Sunrise, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 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. The company is considering a $140,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 12,000 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios.

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Sunrise, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interes...