Business, 27.04.2021 15:20, bentonknalige

Ghost, Inc., has no debt outstanding and a total market value of $185,000. Earnings before interest and taxes, EBIT, are projected to be $29,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 30 percent higher. If there is a recession, then EBIT will be 40 percent lower. The company is considering a $65,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. Required:
a. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued.
b. Calculate the percentage changes in EPS when the economy expands or enters a recession.
c. Calculate earnings per share (EPS) under each of the three economic scenarios intermediate calculations

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Ghost, Inc., has no debt outstanding and a total market value of $185,000. Earnings before interest...