Fujita, Incorporated, has no debt outstanding and a total market value of $220,100. Earnings before interest...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Fujita, Incorporated, has no debt outstanding and a total market value of $220,100. Earnings before interest and taxes, EBIT, are projected to be $38,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 23 percent lower. The company is considering a $120,000 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,100 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b-1. Assume the firm goes through with the proposed recapitalization. Calculate the return on equity, ROE, under each of the three economic scenarios. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-1. Recession ROE Normal ROE Expansion ROE a-2. Recession percentage change in ROE Expansion percentage change in ROE b-1. Recession ROE Normal ROE Expansion ROE b-2. Recession percentage change in ROE Expansion percentage change in ROE % % % % % % % % % % Fujita, Incorporated, has no debt outstanding and a total market value of $220,100. Earnings before interest and taxes, EBIT, are projected to be $38,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 23 percent lower. The company is considering a $120,000 debt issue with an interest rate of 5 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,100 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b-1. Assume the firm goes through with the proposed recapitalization. Calculate the return on equity, ROE, under each of the three economic scenarios. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-1. Recession ROE Normal ROE Expansion ROE a-2. Recession percentage change in ROE Expansion percentage change in ROE b-1. Recession ROE Normal ROE Expansion ROE b-2. Recession percentage change in ROE Expansion percentage change in ROE % % % % % % % % % %
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
In Exercises 7582, express the given function h as a composition of two functions f and g so that h(x) = (f g)(x). h(x) = x-9
-
Suppose that we are given a continuous-time lowpass filter with frequency response H c (j) such that 1 1 | H c (j) | 1 + 1 , || p , |H c (j )| 2 , || s . A set of discrete-time lowpass...
-
What are the three components of intentional torts?
-
(APR vs. EAIR) A recent notice from your credit card company included the following statement: Annual Percentage Rate for Cash Advances: Your annual percentage rate for cash advances is the U.S....
-
Tresh Products uses both special journals and a general journal as described in this chapter. Tresh also posts customers accounts in the accounts receivable subsidiary ledger. The postings for the...
-
What are the pros of equity financing? Select all that apply.
-
Hypergeometric Distribution: A candy dish contains 30 jelly beans and 20 gumdrops. Ten candies are picked at random. You can use the following website for the Combinations CalculatorLinks to an...
-
What is the cost of treating a patient with pancreatitis under each of the cost accounting systems? A pa- tient with cardiac dysrythmia? A patient with liver cancer? What accounts for the changes...
-
Leadership is the ability to influence employees/people to voluntarily pursue organizational goals. Not everyone is suited to being a good leader. Is it (Leadership) a skill anyone can develop?...
-
(V) 5 The partners' capital and current account balances as at 1 November 2019 are as follows: Capital a/c Current a/c RM RM John Lee Tony 50,000 16,320 Cr 30,000 1,110 Cr 10,000 (590) Dr (vi) The...
-
1. What is the output of the following C program? Is c1.sum the same as c2.sum? Why or why not? typedef struct { } cal; int a; int b; int c; int sum; int main() { int sum; cal c1 = {10, 20, 30, sum};...
-
Always begin your Sales Call Planning with purpose. Explain the concept of Purpose. - How is a Plan helpful in Selling Success? - What is your definition of Success
-
Weekly demand for electric motors at a Japanese motor manufacturer is normally distributed, with a mean of 1,000 and a standard deviation of 1,000. Motors are currently assembled in China and...
-
Use a calculator to evaluate the expression. Round your result to the nearest thousandth. V (32 + #)
-
Inherent Risk. Microsoft and Netscape were in fierce competition for dominance of the Internet web browser and software market in 1996. Netscape entered the Internet web browser market first and...
-
Materiality. Materiality should be considered by the auditor when (a) determining the nature, timing and extent of audit procedures and (b) evaluating the effect of misstatements. Required A. Define...
-
Audit risk. The following terms are related to audit risk: 1 Audit risk 2 Inherent risk 3 Control risk 4 Detection risk 5 Inherent limitations of an audit Required For each term: A. Provide a...
Study smarter with the SolutionInn App