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Kaelea, Inc., has no debt outstanding and a total market value of $74,000. Earnings before interest and taxes, EBIT, are projected to be $8,100 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 21 percent higher. If there is a recession, then EBIT will be 34 percent lower. Kaelea is considering a $27,400 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 3,700 shares outstanding. Ignore taxes for this problem. Requirement 1: (a) Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Recession $ Normal $ Expansion $ (b) Calculate the percentage changes in EPS when the economy expands or enters a recession. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) %ΔEPS Recession % Expansion % Requirement 2: Assume Kaelea goes through with recapitalization. (a) Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Recession $ Normal $ Expansion $ (b) Calculate the percentage changes in EPS when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) %ΔEPS Recession % Expansion %
You estimate that you will owe $48,000 in student loans by the time you graduate. The interest rate on your student loan is 4.6%. If you want to have this debt paid in full within 8 years, how much must you pay each month?
Given the following, compute the cost of internally generated equity (retained earnings) using the CAPM approach: The par value of the firms outstanding 20 year 8% annual coupon debt is 1,000 and the debt currently has a market value of 800.
Gardial GreenLights, a manufacturer of energy efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a $15 million investment in new machinery.
The real risk free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year treasury security yields 6.2%. What is the maturity risk premium for the 2-year security?
Aspin Corporation's charter authorizes issuance of 2,000,000 shares of common stock. Currently 1,400,000 shares are outstanding and 100,000 shares are being held as treasury stock. The firm wishes to raise $48,000,000 for a plant expansion. What is t..
Consider a consumer who can purchase only two goods, x and y. If this consumer can, given her income, just afford two bundles (x, y) = (12, 6) and (x, y) = (9, 8). If Py =3, find the equation that describes her budget line, Please explain
Bowman, Inc., is proposing a rights offering. Presently there are 600,000 shares outstanding at $47 each. There will be 120,000 new shares offered at $38 each. What is the new market value of the company? How many rights are associated with one of th..
Which of the following bond provisions will make a bond more desirable to investors, other things being equal?
analyze or look at brand and critically assess them an important analysis is the value chain. the brand value chain
Two years ago, Espirit De Corps sold $250 million worth of bonds at $1,000 each. The bonds had a maturity of 12 years when they were originally issued and a coupon rate of 12%. Today these bonds are selling for $910. Determine the yield-to-maturity (..
Summarize the authoritative guidance for asset impairments under IFRS. Give at least two (2) examples of events that could cause an asset to be tested for impairment, and recommend the best method to determine the fair value of an impaired asset. Exp..
A proposed new project has projected sales of $202,300, costs of $102,340, and depreciation of $7,140. The tax rate is 34 percent. Calculate operating cash flow using the four different approaches.
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