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chapter 13 financial management

Minion, Inc., has no debt outstanding and a total market value of $211,875. Earnings before interest and taxes, EBIT, are projected to be $14,300 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 35 percent lower . The company is considering a $33,900 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,500 shares outstanding. Assume the company has a tax rate of 21 percent. 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.) a- Calculate the percentage changes in EPS when the economy expands or enters a 2. recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.) b- Calculate earnings per share, EPS, under each of the three economic scenarios after 1. the recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b- Calculate the percentage changes in EPS when the economy expands or enters a 2. recession assuming recapitalization has occurred. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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