Fujita, Incorporated, has no debt outstanding and a total market value of $422,400. Sarnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. The company has a tax rate of 23 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.) 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 $ $ $ 3.85 481 5.49 -20.00 % 14.00 % -25.76 % 18.03 %
Fujita, Incorporated, has no debt outstanding and a total market value of $422,400. Sarnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. The company has a tax rate of 23 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.) 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 $ $ $ 3.85 481 5.49 -20.00 % 14.00 % -25.76 % 18.03 %
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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Question
What is the Recession EPS
Normal EPS
Expansion EPS
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Fujita, Incorporated, has no debt outstanding and a total market value of $422,400.
Sarnings before interest and taxes, EBIT, are projected to be $55,000 if economic
conditions are normal. If there is strong expansion in the economy, then EBIT will be 14
percent higher. If there is a recession, then EBIT will be 20 percent lower. The
company is considering a $205,000 debt issue with an interest rate of 6 percent. The
proceeds will be used to repurchase shares of stock. There are currently 8,800 shares
outstanding. The company has a tax rate of 23 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.)
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
$
$
$
3.85
4.81
5.49
-20.00%
14.00 %
-25.76 %
18.03%
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