Question

fujita, incorporated, has no debt outstanding and a total market value of $284,900. earnings before interest and taxes, ebit, are projected to be $44,000 if economic conditions are normal. if there is strong expansion in the economy, then ebit will be 18 percent higher. if there is a recession, then ebit will be 29 percent lower. the company is considering a $150,000 debt issue with an interest rate of 7 percent. the proceeds will be used to repurchase shares of stock. there are currently 7,700 shares outstanding. the company has a tax rate of 22 percent, a market-to-book ratio of 1.0, and the stock price remains constant. 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 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 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.)

Answer 1

To calculate the earnings per share (EPS) under each economic scenario, we need to calculate the EBIT first and then adjust it based on different scenarios. Then we can calculate the EPS by deducting taxes from EBIT and dividing by the number of shares.

Step-by-step explanation:

To calculate the earnings per share (EPS) under each economic scenario before any debt is issued, we need to first calculate the EBIT under normal economic conditions and then adjust it based on the expansion and recession scenarios.

Under normal economic conditions: EBIT = $44,000

Under strong expansion: EBIT = $44,000 + ($44,000 * 0.18)

Under recession: EBIT = $44,000 - ($44,000 * 0.29)

To calculate EPS, we deduct the taxes from EBIT and then divide it by the number of shares outstanding.

Under normal economic conditions: EPS = (EBIT - Taxes) / Number of shares

Under strong expansion: EPS = (EBIT - Taxes) / Number of shares

Under recession: EPS = (EBIT - Taxes) / Number of shares

Now we can calculate these values:

Under normal economic conditions: EPS = ($44,000 - ($44,000 * 0.22)) / 7,700

Under strong expansion: EPS = ($44,000 + ($44,000 * 0.18) - (($44,000 + ($44,000 * 0.18)) * 0.22)) / 7,700

Under recession: EPS = ($44,000 - ($44,000 * 0.29) - (($44,000 - ($44,000 * 0.29)) * 0.22)) / 7,700

Answer 2

Answer: can you explain more

Step-by-step explanation: