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What will be the difference in EPS and total earnings

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Problem - Riley Corp is an all equity firm with 135,000 shares of stock outstanding and a total market value of $1,250,000. Based on its current capital structure the firm is expected to have EBIT of $325,000 if the economy is normal, $94,000 if the economy is in recession and $627,500 if the economy is booming. Ignore taxes. Management is considering $392,500 of debt at a coupon of 4.75%. If the firm issues the debt, proceeds will be used to re-purchase stock. What will be the difference in EPS and total earnings between a normal economy and a recession?

Reference no: EM132972505

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