Tackett Inc. has no debt outstanding and a total market value of $159000. Earnings before interest and taxes EBIT are projected to be $15000 if economic
conditions are normal. If there is strong expansion in the economy the EBIT will be 31.8 percent higher. If there is a recession then EBIT will be 63.6
percent lower. Tackett is considering an $64000 debt issue with a 6 percent interest rate. The proceeds will be used to repurchase shares of stock. There are
currently 2500 share outstanding. Ignore taxes for this problem all answers should be rounded to 2 decimal places.
(a). Earnings per share EPS for the recession normal and expansion scenarios before any debt is issued are $ ________ $_______ and $________
respectively. If the economy enters a recession or expands EPS will change by ________ percent or ________ percent respectively. (do not round interim
calculations)
(b). Now assume that Tackett goes through with recapitalization. Earnings per share EPS for the recession normal and expansion scenarios are $ _________
$__________ and $__________ respectively. If the economy enters a recession or expands EPS will change by _________ percent or _________ percent
respectively. (Do not round interim calculations).