Questions 2Maynard Inc. has no debt outstanding and a total market value of $ 250,000. Earnings beforeinterest ana taxes, EBIT, are projected to be $ 28,000 if economi conditions are normal. If thereis strong expansion in the economy, then EBIT will be 30% higher. If there is a recession, thenEBIT 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 sharesoutstanding. Ignore taxes for this problem.Suppose the company has a market-to-book ratio 1.0a. Calculate return of equity (ROE) under each of the three economic scenarios before any debtissued. Also calculate the percentage changes in ROE for economic expansion dan recession,assuming no taxesb. Repeat Part (a) assuming the firm goes through with the proposed recapitalizatioC. Repeat Part (a) and (b) of this problem assuming the firm has a tax rate of 35 percent

a. Calculation of Return on Equity (ROE) and Percentage Change in ROE: Excel Spreadsheet:…

Maynard Inc. has no debt outstanding and a total market v interest ana taxes, EBIT, are projected to be $ 28,000 if eco is strong expansion in the economy, then EBIT will be 30% EBIT will be 50% lower. Maynard is considering a $ 90,000 The proceeds will be used to repurchase shares of stock." outstanding. Ignore taxes for this problem.

Maynard Inc. has no debt outstanding and a total market v interest ana taxes, EBIT, are projected to be $ 28,000 if eco is strong expansion in the economy, then EBIT will be 30% EBIT will be 50% lower. Maynard is considering a $ 90,000 The proceeds will be used to repurchase shares of stock." outstanding. Ignore taxes for this problem.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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