a-1 |
EPS = EBIT*(1-tax rate)/shares outstanding |
Recession |
EPS = EBIT*(1-recession impact%)*(1-tax rate)/shares outstanding |
EPS=40000*(1-0.2)*(1-0)/11000 |
EPS=2.91 |
Normal |
EPS = EBIT*(1-tax rate)/shares outstanding |
EPS=40000*(1-0)/11000 |
EPS=3.64 |
Expansion |
EPS = EBIT*(1+Growth impact%)*(1-tax rate)/shares outstanding |
EPS=40000*(1+0.1)*(1-0)/11000 |
EPS=4 |
a-2 |
%age change in EPS for Recession |
=(EPS recession/EPS normal-1)*100 |
=(2.9091/3.6364-1)*100 |
=-20% |
%age change in EPS for Growth |
=(EPS Growth/EPS normal-1)*100 |
=(4/3.6364-1)*100 |
=10% |
b-1 |
New no. of shares = old shares-debt/(Market value/old shares) |
=11000-135000/(220000/11000) |
=4250 |
EPS = (EBIT-debt*interest%)*(1-tax rate)/new shares outstanding |
Recession |
EPS = (EBIT*(1-recession impact%)-debt*interest %age)*(1-tax rate)/new shares outstanding |
EPS=(40000*(1-0.2)-135000*0.04)*(1-0)/4250 |
EPS=6.26 |
Normal |
EPS = (EBIT-debt*interest%)*(1-tax rate)/new shares outstanding |
EPS=(40000-135000*0.04)*(1-0)/4250 |
EPS=8.14 |
Expansion |
EPS = (EBIT*(1+growth impact%)-debt*interest %age)*(1-tax rate)/new shares outstanding |
EPS=(40000*(1+0.1)-135000*0.04)*(1-0)/4250 |
EPS=9.08 |
b-2 |
%age change in EPS for Recession |
=(EPS recession/EPS normal-1)*100 |
=(6.2588/8.1412-1)*100 |
=-23% |
%age change in EPS for Growth |
=(EPS Growth/EPS normal-1)*100 |
=(9.0824/8.1412-1)*100 |
=12% |
Ghost, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, ar...
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....
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...
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Ghost, Inc., has no debt outstanding and a total market value of $382,500. Earnings before interest and taxes, EBIT, are projected to be $52,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 23 percent lower. The company is considering a $190,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of...
Sunrise, 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 $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...
Sunrise, Inc., has no debt outstanding and a total market value of $320,000. Earnings before interest and taxes, EBIT, are projected to be $47,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 19 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $165,000 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 $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...
Sunrise, 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...
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...