
Concept explainers
a)
To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession.
Introduction:
The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.
Answer:
The EPS under the recession, normal, and expansion periods are $2.48, $3.82, and $4.77 respectively and the percentage of change in EPS is -35% and +25 for the recession and expansion periods respectively.
b)
To calculate: The EPS (Earnings per share) under three scenarios before the debt issue and the changes in EPS while the economy expands a recession by assuming that the firm undergoes the planned recapitalization.
Introduction:
The EPS is the part of the profit of a firm that is allocated to every outstanding share of the common stock. It indicates the profitability of the company.
Answer:
After recapitalization, the EPS under the recession, normal, and expansion periods are $2.70, $4.80, and $6.30 respectively and the percentage of change in EPS is -43.75% and +31.25 for the recession and expansion periods respectively.

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Chapter 16 Solutions
Connect 1 Semester Access Card for Fundamentals of Corporate Finance
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning

