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Assume the firm tax rate of 35 percent for both parts e. and f. ...

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Accounting

Assume the firm tax rate of 35 percent for both parts e. and f.
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Kaelea, Inc., has no debt outstanding and a total market value of $75,000. Earnings before interest and taxes, EBIT, are projected to be $9,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 24 percent higher. If there is a recession, then EBIT will be 31 percent lower. The company is considering a $22,500 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,000 shares outstanding. Assume the company has a market-to-book ratio of 1.0

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