Business, 19.11.2019 00:31 jwunder5859
Rak, inc., has no debt outstanding and a total market value of $220,000. earnings before interest and taxes, ebit, are projected to be $36,000 if economic conditions are normal. if there is strong expansion in the economy, then ebit will be 18 percent higher. if there is a recession, then ebit will be 25 percent lower. rak is considering a $125,000 debt issue with an interest rate of 8 percent. the proceeds will be used to repurchase shares of stock. there are currently 11,000 shares outstanding. ignore taxes for this problem
a-1
calculate earnings per share (eps) under each of the three economic scenarios before any debt is issued. (do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
eps
recession $
normal $
expansion $
a-2
calculate the percentage changes in eps when the economy expands or enters a recession.(negative amounts should be indicated by a minus sign. do not round intermediate calculations. enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.)
percentage changes in eps
recession %
expansion %
b-1
calculate earnings per share (eps) under each of the three economic scenarios assuming the company goes through with recapitalization. (leave no cells blank - be certain to enter "0" wherever required. do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
eps
recession $
normal $
expansion $
b-2
given the recapitalization, calculate the percentage changes in eps when the economy expands or enters a recession. (negative amounts should be indicated by a minus sign. enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.)
percentage changes in eps
recession %
expansion %
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Answers: 1
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Rak, inc., has no debt outstanding and a total market value of $220,000. earnings before interest an...
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