EBIT and Leverage Control, Inc , has no debt outstanding and a total market value of $100,000 Earnings before interest and taxes, EBIT, are projected to be $6,000 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 60 percent lower Control is considering a $40,000 debt issue with a 5 percent interest rate The proceeds will be used to repurchase shares of stock There are currently 2,500 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

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Question: EBIT and Leverage Control, Inc., has no debt outstanding and a total market value of $100,000. Earnings before interest and taxes, EBIT, are projected to

EBIT and Leverage Control, Inc., has no debt outstanding and a total market value of $100,000. Earnings before interest and taxes, EBIT, are projected to be $6,000 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 60 percent lower. Control is considering a $40,000 debt issue with a 5 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,500 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-

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