A company with market value of 250000 has no debt ebit are, Ask an Expert

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A company with market value of $250,000 has no debt. EBIT are expected to be $28,000 under normal economic conditions, 30% more than that if the economy is strong, but only half that if there is a recession. The company is considering raising $90,000 in debt costing 7% to repurchase stock. Currently there are 5,000 shares outstanding. Ignoring taxes:

a. Calculate EPS under each economic condition before debt is issued.
b. Calculate the percentage changes in EPS when the economy goes from normal to strong and normal to recession.
c. Repeat (a) assuming that the debt was issued and shares were repurchased. What do you observe?

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