Castle, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $36,000 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. The firm is considering a debt issue of $155,000 with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 6,000 shares outstanding. The firm has a tax rate 35 percent. Assume the stock price remains constant.
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. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to the nearest whole number, e.g., 32.)
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. (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. (A negative answer 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 %
Castle, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest...
Castle, 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. The firm is considering a debt issue of $105,000 with an interest rate of 4 percent. The proceeds will be used to repurchase shares...
Ghost, Inc., has no debt outstanding and a total market value of $240,000. Earnings before Interest and taxes, EBIT, are projected to be $26,000 If economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $150,000 debt issue with an Interest rate of 8 percent. The proceeds will be used to repurchase shares of...
Castle, Inc., has no debt outstanding and a total market value of $240,000. 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 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. The firm is considering a debt issue of $140,000 with an interest rate of 6 percent. The proceeds will be used to repurchase shares...
Minion, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $150,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of...
Castle, 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. The firm is considering a debt issue of $60,000 with an interest rate of 7 percent. The proceeds will be used to repurchase shares...
Music City, Inc., has no debt outstanding and a total market value of $240,000. 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 10 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $48,000 debt issue with an interest rate of 4 percent. The proceeds will be used to repurchase shares...
Minion, Inc., has no debt outstanding and a total market value of $240,000. 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 15 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $80,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of...
unrise, Inc., has no debt outstanding and a total market value of $240,000. 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 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $140,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of...
Beckett, Inc., has no debt outstanding and a total market value of $150,000. 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 10 percent higher. If there is a recession, then EBIT will be 30 percent lower. Beckett is considering a debt issue of $75,000 with an interest rate of 6 percent. The proceeds will be used to repurchase shares of...
Kaelea, Inc., has no debt outstanding and a total market value of $120,000. Earnings before interest and taxes, EBIT, are projected to be $9,200 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 22 percent higher. If there is a recession, then EBIT will be 33 percent lower. The company is considering a $37,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of...