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.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Fujita, Incorporated, has no debt outstanding and a total market value of $344,400.
Earnings before interest and taxes, EBIT, are projected to be $49,000 if economic
conditions are normal. If there is strong expansion in the economy, then EBIT will be 17
percent higher. If there is a recession, then EBIT will be 26 percent lower. The
company is considering a $175,000 debt issue with an interest rate of 8 percent. The
proceeds will be used to repurchase shares of stock. There are currently 8,200 shares
outstanding. The company has a tax rate of 22 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 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 is complete but not entirely correct.
$
$
a-1. Recession EPS
a-1. Normal EPS
a-1. Expansion EPS
a-2. Recession percentage change in EPS
a-2. Expansion percentage change in EPS
b-1. Recession EPS
b-1. Normal EPS
b-1. Expansion EPS
b-2. Recession percentage change in EPS
b-2. Expansion percentage change in EPS
69 69
69
$
$
3.45
4.66
5.45
-25.97 %
16.95 %
4.30 X
6.77 X
8.38 X
-36.48 %
23.98 %
Transcribed Image Text:Fujita, Incorporated, has no debt outstanding and a total market value of $344,400. Earnings before interest and taxes, EBIT, are projected to be $49,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 17 percent higher. If there is a recession, then EBIT will be 26 percent lower. The company is considering a $175,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,200 shares outstanding. The company has a tax rate of 22 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 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 is complete but not entirely correct. $ $ a-1. Recession EPS a-1. Normal EPS a-1. Expansion EPS a-2. Recession percentage change in EPS a-2. Expansion percentage change in EPS b-1. Recession EPS b-1. Normal EPS b-1. Expansion EPS b-2. Recession percentage change in EPS b-2. Expansion percentage change in EPS 69 69 69 $ $ 3.45 4.66 5.45 -25.97 % 16.95 % 4.30 X 6.77 X 8.38 X -36.48 % 23.98 %
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