RAK, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $40,000 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 20 percent lower. RAK is considering a $105,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. RAK has a tax rate of 35 percent.
2-1 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 12.80
Normal 16.00
Expansion 19.20
a-2Calculate 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 -20.00 0%
Expansion 20.00 0%
b-1 Calculate earnings per share (EPS) 111011 1301 of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
EPS
Recession 19.17
Normal 24.69
Expansion 30.21
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. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Pltblttoglbt2t.3th in EPS
Recession -22.31 0 %
Expansion MEE %
…………………………………………………………………………………………………………………………………………………………….
(a-1)
EPS
Recession
2.08
Normal
2.60
Expansion
3.12
(a-2)
Percentage Change in EPS
Recession
-20.00%
Expansion
20.00%
(b-1)
EPS
Recession
3.12
Normal
4.01
Expansion
4.91
(b-2)
Percentage Change in EPS
Recession
-22.35%
Expansion
22.35%
Choose an academic level, add pages, and the paper type you want.
To reduce the cost of our essay writing services, select the lengthier deadline.
We can't believe we just said that to you.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more
Recent Comments