Calculate earnings per share

Reference no: EM13260207

Pendergast, Inc., has no debt outstanding and a total market value of $165,000. Earnings before interest and taxes, EBIT, are projected to be $9,900 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 24 percent higher. If there is a recession, then EBIT will be 31 percent lower. Pendergast is considering a $46,500 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,500 shares outstanding. Ignore taxes for this problem.

Requirement 1:

Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued.

Reference no: EM13260207

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