Ghost, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest...

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Ghost, Inc., has no debt outstanding and a total market value of$250,000. Earnings before interest and taxes, EBIT, are projectedto be $40,000 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 20 percent lower. Thecompany is considering a $105,000 debt issue with an interest rateof 4 percent. The proceeds will be used to repurchase shares ofstock. There are currently 10,000 shares outstanding. Ignore taxesfor this problem.
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 calculations and roundyour answers to 2 decimal places, e.g., 32.16.)
b-2. Given the recapitalization, calculate the percentagechanges in EPS when the economy expands or enters a recession. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)

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Solution a1 EPS Recession 320 Normal 400 Expansion 480 Working Notes Recession Normal Expansion a EBIT 32000 40000 48000 40000 x 1020 40000 x 1 020 b No of shares 10000 10000 10000 cab EPS 320 400 480 Change is EPS 20 0 20 newnormalnormal 320 44 480 44 a2 Percentage changes in EPS Recession 2000 Expansion 2000 Notes See above See Answer

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Ghost, Inc., has no debt outstanding and a total market value of$250,000. Earnings before interest and taxes, EBIT, are projectedto be $40,000 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 20 percent lower. Thecompany is considering a $105,000 debt issue with an interest rateof 4 percent. The proceeds will be used to repurchase shares ofstock. There are currently 10,000 shares outstanding. Ignore taxesfor this problem.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 calculations and roundyour answers to 2 decimal places, e.g., 32.16.)b-2. Given the recapitalization, calculate the percentagechanges in EPS when the economy expands or enters a recession. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)