Solutions:
Solutions:
a-1
EPS = EBIT / No. of shares outstanding
EBIT |
Increse / Decrease % |
New EBIT |
No. of shares Outstanding |
EPS |
|
Normal Conditions |
42000 |
- |
42000 |
10000 |
4.20 |
Expansion |
42000 |
20% |
50400 |
10000 |
5.04 |
Recession |
42000 |
30% |
29400 |
10000 |
2.94 |
a-2
EPS |
% change in EPS |
||
Normal Conditions |
4.20 |
||
Expansion |
5.04 |
=(5.04-4.2)4.2 |
20% |
Recession |
2.94 |
=(2.94-4.2)/4.2 |
-30% |
B – 1
Outstanding Shares = 10000
Market Value of Shares = $220,000
Value per share = $220,000/10000 = $22
If $66,000 debt is raised, then the no. of shares purchased = $66,000 / $22 = 3000 Shares
Total Shares Outstanding after recapitalization = 10000+3000 = 13000
Interest = $66,000 * 6% = 3960
EBIT |
Increse / Decrease % |
New EBIT |
Less: Interest |
Net Income |
No. of shares Outstanding |
EPS |
|
Normal Conditions |
42000 |
- |
42000 |
3960 |
38040 |
13000 |
2.93 |
Expansion |
42000 |
20% |
50400 |
3960 |
46440 |
13000 |
3.57 |
Recession |
42000 |
30% |
29400 |
3960 |
25440 |
13000 |
1.96 |
B-2
EPS |
% change in EPS |
||
Normal Conditions |
2.93 |
||
Expansion |
3.57 |
=(3.57-2.93)2.93 |
22.08% |
Recession |
1.96 |
=(1.96-2.93)/2.93 |
-33.12% |
Minion, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest...
Minion, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $42,000 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 30 percent lower. The company is considering a $66,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of...
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...
Minion, 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 company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of...
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...
Minion, Inc., has no debt outstanding and a total market value of $150,000. 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 12 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $90,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of...
Minion, Inc., has no debt outstanding and a total market value of $308,100. Earnings before interest and taxes, EBIT, are projected to be $46,000 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 31 percent lower. The company is considering a $160,000 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of...
Minion, Inc., has no debt outstanding and a total market value of $251,600. Earnings before interest and taxes, EBIT, are projected to be $41,000 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 26 percent lower. The company is considering a $135,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of...
Sunrise, Inc., has no debt outstanding and a total market value of $220,000. 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 15 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $120,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of...
Ghost, Inc., has no debt outstanding and a total market value of $220,000. 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 18 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company considering a $125,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock....
Minion, Inc., has no debt outstanding and a total market value of $284,900. Earnings before interest and taxes, EBIT, are projected to be $44,000 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 29 percent lower. The company is considering a $150,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of...