Calculate percentage changes in eps when economy expands

Assignment Help Financial Management

Reference no: EM132050164

RAK, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 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. RAK is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 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. (Negative amounts 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: %

b-1 Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Leave no cells blank - be certain to enter "0" wherever required. 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. (Negative amounts should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Percentage changes in EPS

Recession: %

Expansion: %

Reference no: EM132050164

Questions Cloud

What is the single loss expectancy : What is the Single Loss Expectancy (SLE)? What is the countermeasure cost for a year? Should the organization purchase this product?

Cash flow from sale-leaseback-continuing to own alternatives : Analyze the cash flows from the sale-leaseback and continuing to own alternatives. What is the NPV of each of these alternatives?

What is the economic life of the machine : The minimum required rate of return is 20%. What is the economic life of the machine?

Invest in the stock if expected net present worth : You will only invest in the stock if your expected net present worth is larger than 0. Find the largest possible value of X."

Calculate percentage changes in eps when economy expands : calculate the percentage changes in EPS when the economy expands or enters a recession.

Experiencing financial difficulties : Aero Tours USA, Inc. has been experiencing financial difficulties and has been late in paying its rent and insurance the last three months.

Calculate portfolio standard deviation : The correlation coefficient between the two is 0.7. Based on this information, calculate the portfolio standard deviation.

What is the new productivity-roi for training expense : What is the new productivity, if it increases 2% over the current 200 units per worker? ROI for training expense?

Three economic scenarios before any debt is issued : Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued.

User Account

All Pages