Question: Maynard, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if

Maynard, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 30 percent higher. If there is a recession, then EBIT will be 50 percent lower. Maynard is considering a $90,000 debt issue with a 7 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 5,000 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?

Step by Step Solution

★★★★★

3.58 Rating (165 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Given data Market value 250000 EBIT 28000 ExpansionEBIT 30 RecessionEBIT 50 Debt issue ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

1143-B-C-F-S-V(774).xlsx

300 KBs Excel File

Students Have Also Explored These Related Corporate Finance Questions!

Assume the taxpayer does NOT wish to contribute to the Presidential Election Fund, unless otherwise stated in the problem. In addition, the taxpayers did NOT receive, sell, send, exchange, or...

EBIT and Leverage wild side, Inc has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $25,000 if economic conditions are normal....

Kaelea, Inc., has no debt outstanding and a total market value of $70,000. Earnings before interest and taxes, EBIT, are projected to be $6,000 if economic conditions are normal. If there is strong...

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...

Maynard, Inc. has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong...

Maynard, Inc., has no debt outstanding and a total market value of $158,000. Earnings before interest and taxes, EBIT, are projected to be $15,000 if economic conditions are normal. If there is...

In 2011, the U.S. automobile industry appeared to be recovering as the overall economy improved. Suppose, though, that the following unlikely event had occurred: Because of the severity of the...

What information is shown on the bank statement?

Every provider needs to attend their Team Meetings. There's only one correct answer. True False

2. Refer to Figure 2.43 and calculate the line current I. The load is connected to a symmetrical, three-phase, cba-rotation supply with Ean = 240/0 V. a bo- An unbalanced Ic 18/56,3 22 26,4261,7 2....

Below is part of the ERD for the database of The Art House, Inc. The Art house sells mass- produced art objects. They maintain about 300 identical units of each inventory item they sell. If the...

Braking distance was evaluated for 4 different brake materials. Run an analysis of variance to determine if there is a difference in treatments? Use the six steps of hypothesis testing at a 0.05...

A construction company has a fleet of vehicles that are used by crews. The vehicles cost $35,000 each to purchase new and depreciate at a declining-balance rate of 30% per year. The vehicles have a...

You must decide whether to produce "Straight Out of New Canaan, a biographical film about four thugs who acquire fortune and fame as "gansta rappers. The budget, or initial investment, to produce the...

7. Should Maggie have developed a plan of action before her meeting with her employees? If so, what specific plan would you suggest? Maggie Wiltz manages a high-fashion specialty store in Atlanta,...

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired...

Suppose a stock had an initial price of $72 per share, paid a dividend of $1.65 per share during the year, and had an ending share price of $85. Compute the percentage total return. What was the...

Rework Problem l assuming the ending share price is $62. Problem l Suppose a stock had an initial price of $72 per share, paid a dividend of $1.65 per share during the year, and had an ending share...

i need help For each scenario, list all the numberls) ofany of the diagrams that could satisfy the given situation.There may be more than one diagram satisfying a situation which means you magir be...

Goodwin Technologies has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. She expectes Goodwin to pay...

How many different ID cards can be made if there are three digits on a card and no digit can be used more than once? What if digits can be repeated?