(Answered) Ebit and leveragenbsprak inc has no debt outstanding and a

Economics

EBIT and Leverage: 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 strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, the 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 (EPS) under each of the three economic scenarios before any debt is issued. Also calculate 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?

View complete question

Business Economics, Economics

Category:- Business Economics
Reference No.:- M92679312
Price:- $20

Verified Expert

Priced at $40 Now at $20, Verified Solution

Have any Question?Write your Review or question?

Related Questions in Business Economics

What type of monopoly is sydney water describe the main

What type of monopoly is Sydney Water? Describe the main characteristics of this monopoly type in general and in relation to Sydney Water.

When comparing monopolization to monopolistic competition

When comparing monopolization to monopolistic competition in the wireless telecommunications world, what are some good differences to touch on in a short paper?

Consider the following cournot oligopolythere are two

Consider the following Cournot oligopoly: There are two identical firms in the industry, which set their quantities produced simultaneously. The two firms face a market demand curve, Q = 120 - P, in which Q = q1 + q2. Ea ...

Here is some questions need helphow will each of the

Here is some questions need help How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in the given market; that is, do price and quantity increase or decrease, ...

The diet doctor claims that the average north american is

The diet doctor claims that the average North American is more than 20 pounds overweight. To test his claim, a random sample 30 Of north Americans was weighted, the difference between their actual weight and their ideal ...

How to determine the points for graphically representing

How to determine the points for graphically representing the equilibrium(600000) which was derived from the equation, D=1500000-60000W, S= 120000W-1200000, with wage rate being $15 per hour at equilibrium.

Since quotas do not raise revenues but have the same trade

Since quotas do not raise revenues but have the same trade effects as do tariffs, why not just have tariffs? Why would the government impose quotas when tariffs not only would reduce imports but also bring in new revenue ...

Briefly explain the meaning of the t-test for regression

Briefly explain the meaning of the t-test for regression analysis. How can the "rule of two" be used to evaluate t-ratios?

Event a occurs with probability 04 if events a and b are

Event A occurs with probability 0.4. If events A and B are not disjoint, then a P(B) b P(B) ≥ 0.6. c P(B) > 0.6. d P(B) Step 1:You are tossing a balanced die that has probability of coming up 1 on each toss. Tosses are i ...

Among 350 randomly selected drivers in the 16-18 age

Among 350 randomly selected drivers in the 16-18 age? bracket, 275 were in a car crash in the last year. If a driver in that age bracket is randomly? selected, what is the approximate probability that he or she will be i ...

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

Recent Questions

Ask Business Economics Expert