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In: Finance
Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected...
Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected to be $6,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 30% higher. If there is a recession, then EBIT will be 60% lower. The firm is considering a $40,000 debt issue with 5% interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,500 shares outstanding. Ignore taxes for this problem.
- Calculate EPS under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession. ($0.96; $2.4; $3.12, -60%; 30%)
- Repeat part (a) assuming that the firm goes through with capitalization. ($0.27; $2.67; $3.87; -90%, 45%)
Please no Excel, and Show formula. I will rate! Thank u
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Expert Solution
Sorry, I had to use excel. I
don't have other options. But I tried to give all the formulae. Any
doubts kindly comment. I will answer them too.
jeff jeffy answered 1 year agoRelated Solutions
Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected...
Control Inc., has no debt outstanding and a total market value
of $100,000. EBIT is projected to be $6,000 if economic conditions
are normal. If there is a strong expansion in the economy, then
EBIT will be 30% higher. If there is a recession, then EBIT will be
60% lower. The firm is considering a $40,000 debt issue with 5%
interest rate. The proceeds will be used to repurchase shares of
stock. There are currently 2,500 shares outstanding. Ignore taxes...
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debt outstanding and a total market value of $100,000. Earnings
before interest and taxes, EBIT, are projected to be $8,400 if
economic conditions are normal. If there is strong expansion in the
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interest and taxes, EBIT, are projected to be $29,000 if economic
conditions are normal. If there is strong expansion in the economy,
then EBIT will be 30 percent higher. If there is a recession, then
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projected to be $9,900 if economic conditions are normal. If there
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higher. If there is a recession, then EBIT will be 31 percent
lower. The company is considering a $46,500 debt issue with an
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Kaelea, Inc., has no debt outstanding and a total market value
of $165,000. Earnings before interest and taxes, EBIT, are
projected to be $9,900 if economic conditions are normal. If there
is strong expansion in the economy, then EBIT will be 24 percent
higher. If there is a recession, then EBIT will be 31 percent
lower. The company is considering a $46,500 debt issue with an
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RAK, Inc., has no debt outstanding and a total market value of
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there is a recession, then EBIT will be 20 percent lower. RAK is
considering a $90,000 debt issue with an interest rate of 6
percent. The proceeds will be used to repurchase shares of stock....
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