60.1K

Verified Solution

Link Copied!

Ghost, 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. The company 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 this problem ences 2-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) 0-2. Calculate the percentage changes in EPS 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. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g... 32.16.) b-2. Given the recapitalization calculate the percentage changes in EPS when the economy expands or enters recession (A negative answer should be indicated by o minus sign. Do not round intermediate calculations and enter your answers Os o percent rounded to 2 decimal places, e... 32.16.)

Answer & Explanation Solved by verified expert

See Answer