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 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 _________________%
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 4 images
