|
Ghost, Inc., has no debt outstanding and a total market value of $395,600. Earnings before interest and taxes, EBIT, are projected to be $53,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 13 percent higher. If there is a recession, then EBIT will be 22 percent lower. The company is considering a $195,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,600 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. |
| a-1. |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| a-2. | Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b-1. | Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b-2. | Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Assume the firm has a tax rate of 21 percent. |
| c-1. | Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c-2. | Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c-3. | Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c-4. | Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
Castle, Inc., has no debt outstanding and a total market value
of $250,000. Earnings before interest and taxes, EBIT, are
projected to be $42,000 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 30 percent
lower. The firm is considering a debt issue of $100,000 with an
interest rate of 8 percent. The proceeds will be used to repurchase
shares of stock. There are currently 10,000 shares outstanding.
Ignore taxes for questions a and b. Assume the stock price remains
constant.
a-1. Calculate return on equity (ROE) under each
of the three economic scenarios before any debt is issued.
(Do not round intermediate calculations. Enter your answers
as a percent rounded to 2 decimal places, e.g.,
32.16.)
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
a-2. Calculate the percentage changes in ROE when the
economy expands or enters a recession. (A negative answer
should be indicated by a minus sign. Do not round intermediate
calculations. Enter your answers as a percent rounded to the
nearest whole number, e.g., 32.)
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
Assume the firm goes through with the proposed
recapitalization.
b-1. Calculate the return on equity (ROE) under each of
the three economic scenarios. (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
| ROE | |
| Recession | % |
| Normal | % |
| Expansion | % |
b-2. Calculate the percentage changes in ROE when the
economy expands or enters a recession. (A negative answer
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.)
| % change in ROE | |
| Recession | % |
| Expansion | % |
Assume the firm has a tax rate of 35 percent.
c-1. Calculate return on equity (ROE) under each
of the three economic scenarios before any debt is issued.
(Do not round intermediate calculations. Enter your answers
as a percent rounded to 2 decimal places, e.g.,
32.16.)
| ROE | |
| Recession | % |
| Normal | % |
| Expansion | % |
c-2. Calculate the percentage changes in ROE when
the economy expands or enters a recession. (A negative
answer should be indicated by a minus sign. Do not round
intermediate calculations. Enter your answers as a percent rounded
to the nearest whole number, e.g., 32.)
| % change in ROE | |
| Recession | % |
| Expansion | % |
c-3. Calculate the return on equity (ROE) under each of
the three economic scenarios assuming the firm goes through with
the recapitalization. (Do not round intermediate
calculations. Enter your answers as a percent rounded to 2 decimal
places, e.g., 32.16.)
| ROE | |
| Recession | % |
| Normal | % |
| Expansion | % |
c-4. Given the recapitalization, calculate the percentage
changes in ROE when the economy expands or enters a recession.
(A negative answer 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.)
| % change in ROE | |
| Recession | % |
| Expansion | % |
In: Finance
|
RAK, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 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 20 percent lower. RAK is considering a $150,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 15,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. |
| a-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| a-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm goes through with the proposed recapitalization. |
| b-1 |
Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| b-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm has a tax rate of 35 percent. |
| c-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| c-3 |
Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-4 |
Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
In: Finance
|
RAK, Inc., has no debt outstanding and a total market value of $240,000. 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 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. RAK is considering a $155,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 6,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. |
| a-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| a-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm goes through with the proposed recapitalization. |
| b-1 |
Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| b-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm has a tax rate of 35 percent. |
| c-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| c-3 |
Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-4 |
Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
In: Finance
Castle, Inc., has no debt outstanding and a total market value
of $200,000. Earnings before interest and taxes, EBIT, are
projected to be $30,000 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 20 percent
lower. The firm is considering a debt issue of $75,000 with an
interest rate of 8 percent. The proceeds will be used to repurchase
shares of stock. There are currently 8,000 shares outstanding.
Ignore taxes for questions a and b. Assume the stock price remains
constant.
a-1. Calculate return on equity (ROE) under each
of the three economic scenarios before any debt is issued.
(Do not round intermediate calculations. Enter your answers
as a percent rounded to 2 decimal places, e.g., 32.16.)
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
a-2. Calculate the percentage changes in ROE when the
economy expands or enters a recession. (A negative answer
should be indicated by a minus sign. Do not round intermediate
calculations. Enter your answers as a percent rounded to the
nearest whole number, e.g., 32.)
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
Assume the firm goes through with the proposed
recapitalization.
b-1. Calculate the return on equity (ROE) under each of
the three economic scenarios. (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
| ROE | |
| Recession | % |
| Normal | % |
| Expansion | % |
b-2. Calculate the percentage changes in ROE when the
economy expands or enters a recession. (A negative answer
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.)
| % change in ROE | |
| Recession | % |
| Expansion | % |
Assume the firm has a tax rate of 35 percent.
c-1. Calculate return on equity (ROE) under each
of the three economic scenarios before any debt is issued.
(Do not round intermediate calculations. Enter your answers
as a percent rounded to 2 decimal places, e.g.,
32.16.)
| ROE | |
| Recession | % |
| Normal | % |
| Expansion | % |
c-2. Calculate the percentage changes in ROE when
the economy expands or enters a recession. (A negative
answer should be indicated by a minus sign. Do not round
intermediate calculations. Enter your answers as a percent rounded
to the nearest whole number, e.g., 32.)
| % change in ROE | |
| Recession | % |
| Expansion | % |
c-3. Calculate the return on equity (ROE) under each of
the three economic scenarios assuming the firm goes through with
the recapitalization. (Do not round intermediate
calculations. Enter your answers as a percent rounded to 2 decimal
places, e.g., 32.16.)
| ROE | |
| Recession | % |
| Normal | % |
| Expansion | % |
c-4. Given the recapitalization, calculate the percentage
changes in ROE when the economy expands or enters a recession.
(A negative answer 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.)
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
In: Finance
|
RAK, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 10 percent higher. If there is a recession, then EBIT will be 25 percent lower. RAK is considering a $48,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 20,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. |
| a-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| a-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm goes through with the proposed recapitalization. |
| b-1 |
Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| b-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm has a tax rate of 35 percent. |
| c-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| c-3 |
Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-4 |
Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
In: Finance
RAK, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 20 percent lower. RAK is considering a $105,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0.
a-1 Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE
Recession %
Normal %
Expansion %
a-2 Calculate the percentage changes in ROE 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.)
% change in ROE
Recession %
Expansion %
Assume the firm goes through with the proposed recapitalization.
b-1 Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE
Recession %
Normal %
Expansion %
b-2 Calculate the percentage changes in ROE 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.)
% change in ROE
Recession %
Expansion %
Assume the firm has a tax rate of 35 percent.
c-1 Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE
Recession %
Normal %
Expansion %
c-2 Calculate the percentage changes in ROE 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.)
% change in ROE
Recession %
Expansion %
c-3 Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
ROE
Recession %
Normal %
Expansion %
c-4 Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))
% change in ROE
Recession %
Expansion %
In: Finance
For this project and presentation you will be focusing on Organizational Change, which is discussed in Chapter 15. Organizational change can come about for a number of reasons, which include problems within the organization that decreases its reputation or product confidence, innovation, technological improvements, or simply staying ahead of the competition. Mergers and acquisitions, changes in leadership, ethical violations, and organizational mistakes may require changes to the organization.
For example, remember Tony Howard, the former chief executive of BP? He faced leadership and communication problems within his organization following the 2010 oil spill. BP's image and value plummeted, and the employees' motivation followed. BP needed to make external changes, and these changes needed to be accepted internally (by the employees) in order to be successful. BP and Howard would be in a lot better shape if they had consulted with us! We want to show this client we can take such an event, research its history, and apply organizational behavior concepts to recommend successful solutions. You will learn that change is very difficult to implement in an organization. “Out with the old, and in with the new” is not always welcome by the organization’s staff. Many employees like the old ways and may be not embrace the change. So, the question becomes – how to get everyone on the staff to support the change.
I need you to research and write a paper where you will review an organization that you find needs to implement a change. For this Week 6 your paper will analyze the organization, identify its problems that make it ripe for a change, and apply a change theory.
(In Week 8 you will present your paper to me by video. I will use the best video to present to a new client who could make or break our company. This is client is a multi-national, multi-million dollar company that is interested in hiring a full time consulting service to help their organization implement a large scale change.)
I want to be absolutely certain that you follow all directions to a “T”, so read the directions to the project below very carefully. Let’s get this deal! Good luck and let me know if you have questions.
1. Locate 3 peer reviewed journal articles that discuss organizational change and organizational change model. (Limit your change model discussion to the two change models identified in the text in Chapter 16: Lewin and Kotter). This will require research using library data bases. Note your text does not count toward the 3 peer reviewed articles. You can use Google Scholar or the Library resources to locate the 3 peer reviewed articles.
2. Topic: Start by locating an organization that has experienced a problem or event that has a significant effect on the organization. This problem MUST involve the internal organizational culture. Review news reports, newspapers or business periodicals such as National Public Radio, Forbes, The Wall Street Journal, Business Week or the New York Times. You will need to use 3 references for this part.
In: Operations Management
|
RAK, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $24,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 30 percent lower. RAK is considering a $70,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. |
| a-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| a-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm goes through with the proposed recapitalization. |
| b-1 |
Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| b-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm has a tax rate of 35 percent. |
| c-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| c-3 |
Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-4 |
Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
In: Finance
|
RAK, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 20 percent lower. RAK is considering a $105,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. |
| a-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| a-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm goes through with the proposed recapitalization. |
| b-1 |
Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| b-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| Assume the firm has a tax rate of 35 percent. |
| c-1 |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-2 |
Calculate the percentage changes in ROE 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.) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
| c-3 |
Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| ROE | ||
| Recession | % | |
| Normal | % | |
| Expansion | % | |
| c-4 |
Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
| % change in ROE | ||
| Recession | % | |
| Expansion | % | |
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