castle inc has no debt outstanding

 castle inc has no debt outstanding and a total market value of $140,000  earnings before interest and taxes EBIT are projected to be $32,000 if  economic conditions are normal if there is strong expansion in the  economy then EBIT will be 12 percent higher if there is a recession then  EBIT will be 30 percent lower the firm is considering a debt issue of  $115,000 with an interest rate of 6 percent the proceeds will be used to  repurchase shares of stock there are currently 7,000 shares outstanding  the firm has a tax rate 35 percent assume the stock price remains  constant
1a calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued
recession                        EPS
normal
expansion
b2 given the recapialization calculate the percentage changes in EPS when the economy expands or enters a recession
percentage changes in EPS
recession
expansion
2a calculate the percentage changes in EPS when the economy expands or enters a recession
percentage changes in EPS
recession
expansion
b1  calculating earnings per share (EPS) under each of the three economic  scenarios assuming the company goes through with recapitalization
recession                       EPS
normal
expansion 

Leave a Reply