Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Pendergast, Inc., has no debt outstanding and a total market value of $180,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 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 30 percent lower. Pendergast is considering a $75,000 debt issue with a 7 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 6,000 shares outstanding. Ignore taxes for this problem.

a) find out earnings per share (EPS) under each of the three economic scenarios before any debt is issued. Also find out the percentage changes in EPS when the economy expands or enters a recession.

b) Repeat part (a) assuming that the company goes through with recapitalization. What do you observe?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M940393

Have any Question? 


Related Questions in Basic Finance

1 some people purposely ignore a bill and put it out of

1. Some people purposely ignore a bill and put it out of their minds in order to avoid the stress associated with it. Other people pay their bills immediately because they worry that they might forget about paying them. ...

Explain the advantages and disadvantages of implementing

Explain the advantages and disadvantages of implementing portfolio insurance using stock and puts in comparison to using stock and futures in a dynamic hedge strategy? Explain how a portfolio manager might justify the pu ...

Identify the three parties involved in any credit

Identify the three parties involved in any credit derivatives transaction and describe how they differ in their roles and responsibilities with regard to the transaction? If a portfolio of derivatives is delta hedged by ...

Go to financeyahoocom and in the get quotes box at the top

Go to finance.yahoo.com and in the "Get Quotes" box at the top left of the screen, type in VIX to get the volatility index for the S&P 500. Go to historical prices and graph the past five years of the index. How has vola ...

Identifying the efficient portfolioconsider the omega fund

Identifying the Efficient Portfolio Consider the Omega Fund and real estate fund of Example 11.13. Suppose you have $100 million invested in the Omega Fund. In addition to this position, how much should you invest in the ...

1 when a doublet is added to a uniform stream so that the

1. When a doublet is added to a uniform stream so that the source part of the doublet faces the stream, a cylinder flow results. Plot the streamlines when the doublet is reversed so that the sink faces the stream. 2. A 2 ...

Go to yahoo and download recent balance sheets for

Go to Yahoo! and download recent balance sheets for Microsoft, Merck, Archer Daniels Midland, and General Mills (ticker symbols MSFT, MRK, ADM, and GIS, respectively). Calculate several debt ratios for each company and c ...

Assignemnt investment and pension trust funds1 describe

Assignemnt: Investment and Pension Trust Funds 1. Describe GASB requirements for accounting for Investment Trust Funds, (a) a discussion of when the use of investment trust funds is appropriate. (b) the investments to be ...

What is the signaling theory of mergers what is the

What is the signaling theory of mergers? What is the relationship between signaling and the mode of payment used in acquisitions? Is there a relationship between the mode of payment used in acquisitions and the level of ...

1 what part of the federal fair housing act is applicable

1. What part of the federal Fair Housing Act is applicable to an apartment project? 2. Define net lease. 3. Why does shopping center management promote shopper-attraction activities? 4. How does a shopping center utilize ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro