Ghost, Inc., has no debt outstanding and a total market value of$308,100. Earnings before interest and taxes, EBIT, are projectedto be $46,000 if economic conditions are normal. If there is strongexpansion in the economy, then EBIT will be 20 percent higher. Ifthere is a recession, then EBIT will be 31 percent lower. Thecompany is considering a $160,000 debt issue with an interest rateof 5 percent. The proceeds will be used to repurchase shares ofstock. There are currently 7,900 shares outstanding. The companyhas a tax rate of 24 percent, a market-to-book ratio of 1.0, andthe stock price remains constant.

  

a-1.	Calculate earnings per share (EPS) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16.)
a-2.	Calculate the percentage changes in EPS when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
b-1.	Calculate earnings per share (EPS) under each of the threeeconomic scenarios assuming the company goes through withrecapitalization. (Do not round intermediate calculationsand round your answers to 2 decimal places, e.g.,32.16.)
b-2.	Given the recapitalization, calculate the percentage changes inEPS when the economy expands or enters a recession.