The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession. Introduction: The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company. Answer: The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

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Answer 1

Question

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

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1. EBIT and Leverage Fujita, Inc., has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios. a. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enters a recession b. Repeat part (a) assuming that the company goes through with recapitalization. What do you observe? 2. EBIT, Taxes, and Leverage Repeat parts (a) and (b) in Problem 1 assuming the…

Questions 2 Maynard Inc. has no debt outstanding and a total market value of $ 250,000. Earnings before interest ana taxes, EBIT, are projected to be $ 28,000 if economi conditions are normal. If there is strong expansion in the economy, then EBIT will be 30% higher. If there is a recession, then EBIT will be 50% lower. Maynard is considering a $ 90,000 debt issue with a 7% interest rate. The proceeds will be used to repurchase shares of stock. There are currently 5,000 shares outstanding. Ignore taxes for this problem. Suppose the company has a market-to-book ratio 1.0 a. Calculate return of equity (ROE) under each of the three economic scenarios before any debt issued. Also calculate the percentage changes in ROE for economic expansion dan recession, assuming no taxes b. Repeat Part (a) assuming the firm goes through with the proposed recapitalizatio C. Repeat Part (a) and (b) of this problem assuming the firm has a tax rate of 35 percent

# 5 Fujita, Incorporated, has no debt outstanding and a total market value of $369,600. Earnings before interest and taxes, EBIT, are projected to be $51,000 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 24 percent lower. The company is considering a $185,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,400 shares outstanding. The company has a tax rate of 24 percent, a market-to-book ratio of 1.0 before recapitalization, and the stock price changes according to M&M. a-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.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A…

Answer 2

Question

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

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Answer 3

Question

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

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Answer 4

Question

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

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Answer 5

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

Answer 6

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

Answer 7

Chapter 16, Problem 1QP

a)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.

Answer 8

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

Answer 9

b)

Summary Introduction

To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.

Introduction:

The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.

Answer:

After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

Answer 10

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Answer 13

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Solution Summary: The author calculates the EPS (Earnings per share) under the recession, normal, and expansion periods.

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