Total market value

RAK, Inc., has no debt outstanding and a total market value of $165,000. Earnings before interest and taxes, EBIT, are projected to be 21,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,500 shares outstanding. Ignore taxes for this problem.a. Calculate earnings per share under each of the threeeconomic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enter a recession.b. Repeat part (a) assuming that the company goes through with recapitalization? What do you observe?aEBITEPS 210002625013650$ 3.82 $ 4.77 $ 2.48 bEBITInterestEBT 21000420016800 Repurchased sharesNew sharesEPS 26250420022050 1365042009450 20003500$ 4.80 $ 6.30 $ 2.70 The EPS is…

We help you get better grades, improve your productivity and get more fun out of college!!

Get 25% Discount on Your First Order

Day(s)

:

Hour(s)

:

Minute(s)

:

Second(s)

How it works – it’s easy

Y

Place your Order

Submit your requirements through our small easy order form. Be sure to include and attach any relevant materials.

Make a payment

The total price of your order is based on number of pages, academic level and deadline.

i

Writing process

We assign the assignment to the most qualified tutor. When the tutor completes the assignment, it is transferred to one of our professional editors to make sure that the assignment meets all of your requirements.

Once complete, we’ll send your assignment via the email provided on the order form.

 

 

Achieve academic success with the best online tutors.