Question

Jasper industrial has no debt outstanding and a total market value of $216,000. earnings before interest and taxes, ebit, are projected to be $15,000 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 15 percent lower. there are currently 8,600 shares outstanding. ignore taxes. what is the percentage change in eps when a normal economy slips into recession

Answer 1

What is the percentage change in EPS when a normal economy slips into recession -15.0 percent

Under Normal Economic Conditions :

EPS = EBIT/shares outstanding = $216000/8600 = $25.11

Under Expansionary Times:

EPS = [EBIT x 1.60]/shares outstanding = $216,000(1.3)/8600

$280800/8600 = $32.65

Under a Recession:

EPS = [EBIT x (1-.12)]/shares outstanding =$216,000(.15)/8600

$324000/8600 = $37.67

% Δ EPS going from Normal  Expansion:

($32.65 - $37.67)/$37.67 = .15 or 15%

% Δ EPS going from Normal  Recession:

($32.65 - $37.67)/$37.67 = -.15 or -15%

About EBIT :

Earnings before interest and taxes (EBIT) is an indicator of a company's profitability. EBIT can be calculated as revenue minus expenses excluding tax and interest. EBIT is also referred to as operating earnings, operating profit, and profit before interest and taxes.

Learn more about EBIT :

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