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Fujita, Incorporated, has no debt outstanding and a total market value of $$296,400.$ Earnings before interest and taxes, EBIT, are

projected to be $$45,000$ if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be $19$ percent

higher. If there is a recession, then EBIT will be $30$ percent lower. The company is considering a $$155,000$ debt issue with an interest

rate of $8$ percent. The proceeds will be used to repurchase shares of stock. There are currently $7,800$ shares outstanding. Ignore taxes

for questions $($a$)$ and $($b$).$ Assume the company has a market$-$to$-$book ratio of $1\mathrm{.}0$ 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.

Note: Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

a$-2.$ Calculate the percentage changes in ROE when the economy expands or enters a recession.

Note: 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$.,32\mathrm{.}16.$

$b-1.$ Assume the firm goes through with the proposed recapitalization. Calculate the return on equity, ROE, under each of the three

economic scenarios.

Note: Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

$b-2.$ Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy

expands or enters a recession.

Note: 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$.,32\mathrm{.}16.$

Assume the firm has a tax rate of $23$ percent.

c$-1.$ Calculate return on equity $($ ROE $)$ under each of the three economic scenarios before any debt is issued.

Note: Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

$c-2.$ Calculate the percentage changes in ROE when the economy expands or enters a recession.

Note: 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$.,32\mathrm{.}16.$

c$-3.$ Calculate the return on equity $($ROE$)$ under each of the three economic scenarios assuming the firm goes through with the

recapitalization.

Note: Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

c$\mathrm{.}4.$ Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession.

Note: 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$.,32\mathrm{.}16.$

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