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grandymaker [24]
3 years ago
10

Money, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are project

ed to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 20 percent lower. Money is considering a $150,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 15,000 shares outstanding. Ignore taxes for this problem.
a. Calculate earnings per share, EPS, under each of the three economic scenarios (recession, normal, expansion) 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 assuming the company goes through with recapitalization.

d. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession.

Business
1 answer:
lara31 [8.8K]3 years ago
7 0

Answer:

a. Calculate earnings per share, EPS, under each of the three economic scenarios (recession, normal, expansion) before any debt is issued. = 1.38667

b. Calculate the percentage changes in EPS when the economy expands or enters a recession. = -20.00%

c. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. = 1.56444

d. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. = -37.14%

Explanation:

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lesantik [10]

Answer: 28.6%

Explanation:

The return on the total asset of a firm will be calculated as the net income divided by the total asset and this will be:

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=50,000/175,000

=28.6%

Therefore, return on total asset is 28.6%

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Answer:

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3 years ago
The conceptual framework that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (
Leokris [45]

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D) Uniformity

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$3,180

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Monthly salary would be the base salary = $2500

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3 years ago
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