RAK, Inc., has no debt outstanding and a total market value of $220,000. 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 b 10 percent higher. If there is a recession, then EBIT will be 20 percent lower. RAK is considering a $135,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. Ignore taxes for this problem.. A. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. EPS Recession $ Normal $ Expansion$
RAK, Inc., has no debt outstanding and a total market value of $220,000. 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 b 10 percent higher. If there is a recession, then EBIT will be 20 percent lower. RAK is considering a $135,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. Ignore taxes for this problem.. A. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. EPS Recession $ Normal $ Expansion$
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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Transcribed Image Text:RAK, Inc., has no debt outstanding and a total market value of $220,000. 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
10 percent higher. If there is a recession, then EBIT will be 20 percent lower. RAK is considering a $135,000 debt issue
with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000
shares outstanding. Ignore taxes for this problem..
A. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes
through with recapitalization.
EPS
Recession $
Normal $
Expansion$
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