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.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 8P

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Questions 1 Maynard Inc. has no debt outstanding and a total market value of $250,000. EBIT are projected to be $28,000 if the economic condition is normal. If there is a 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. A. Calculate EPS under each of the 3 economic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enter recession. B. Repeat part (a) assuming that the economy goes through with recapitalization. What do you observe? C. Repeat parts a and b in ex. 1 assuming Maynard has a tax rate of 35%.
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