Superb Professors

Castle, Inc., has no debt outstanding and a total market value of
$240,000. Earnings before interest and taxes, EBIT, are projected to be $36,000 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 $155,000 with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 6,000 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.)
EPS Recession $ Normal $ Expansion $
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. Enter your answers as a percent rounded to the nearest whole number, e.g., 32.)
Percentage changes in EPS Recession % Expansion %
b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
EPS Recession $ Normal $ Expansion $
b-2. Given the recapitalization, 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. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Percentage changes in EPS Recession % Expansion %
 
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code “Newclient”

The post Castle, Inc., has no debt outstanding and a total market value appeared first on Superb Professors.

"Order a Custom Paper on Similar Assignment! No Plagiarism! Enjoy 20% Discount"