Mercury Corp. has no debt outstanding and a total market value of $350,000. Earnings before interest and taxes (EBIT) are projected to be $60,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 22% higher. If there is a recession, then EBIT will be 28% lower. The company is considering a $180,000 debt issue with an interest rate of 7%. The proceeds will be used to repurchase shares of stock. There are currently 9,000 shares outstanding. Ignore taxes for questions a) and b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Required: Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued.
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- Money, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15% higher. If there is a recession, then EBIT will be 20% lower. Money is considering a $120,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession.Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Note: 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. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded…Fujita, Incorporated, has no debt outstanding and a total market value of $222,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. The company has a tax rate of 21 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. Note: 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. Note: A negative answer should be indicated by a minus sign. Do…
- Fujita, Incorporated, has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $42,000 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 30 percent lower. The company is considering a $100,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Note: 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. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded…Fujita, Incorporated, has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $120,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. Ignore taxes for this problem. 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…Ghost, Inc., has no debt outstanding and a total market value of $140,000. Earnings before interest and taxes, EBIT, are projected to be $32,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $115,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,000 shares outstanding. Ignore taxes for this problem. 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…
- Mercury Corp. has no debt outstanding and a total market value of $350,000. Earnings before interest and taxes (EBIT) are projected to be $60,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 22% higher. If there is a recession, then EBIT will be 28% lower. The company is considering a $180,000 debt issue with an interest rate of 7%. The proceeds will be used to repurchase shares of stock. There are currently 9,000 shares outstanding. Ignore taxes for questions a) and b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Required: Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued.Minion, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $105,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. Recession EPS ________________ Normal EPS __________________ Expansion EPS _______________ Calculate the percentage changes in EPS when the economy expands or enters a recession. Recession percentage change in EPS _________________% Expansion percentage change in EPS _________________%Minion, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $105,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. Recession EPS ____________ Normal EPS _______________ Expansion EPS ____________ Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. Recession percentage change in EPS _____________% Expansion percentage change in EPS _____________%
- Fujita, Incorporated, has no debt outstanding and a total market value of $140,000. Earnings before interest and taxes, EBIT, are projected to be $32,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $115,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,000 shares outstanding. Ignore taxes for this problem. 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…Fujita, Incorporated, has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $14,000 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 20 percent lower. The company is considering a debt issue of $75,000 with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios. 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…Fowler, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The firm is considering a debt issue of $60,000 with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. The firm has a tax rate 25 percent. Assume the stock price is constant under all scenarios. 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…