Fujita, Incorporated, has no debt outstanding and a total market value of $436,100. Earnings before interest...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/664952e6d2efd_382664952e643f7d.jpg)
Transcribed Image Text:
Fujita, Incorporated, has no debt outstanding and a total market value of $436,100. Earnings before interest and taxes, EBIT, are projected to be $56,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $210,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,900 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. 8-1. Recession ROE Normal ROE Expansion ROE 8-2. Recession percentage change in ROE 10.27% 12.84 % 14.77% -20.00% Expansion percentage change in ROE 15.00 % b-1. Recession ROE 13.31 % Normal ROE 18.27 % Expansion ROE b-2. Recession percentage change in ROE 21.98 % -27.12% Expansion percentage change in ROE 20.34 % Assume the firm has a tax rate of 24 percent. c-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. c-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. c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c-4. Given the 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. C-1. Recession ROE Normal ROE Expansion ROE c-2. Recession percentage change in ROE Expansion percentage change in ROE C-3. Recession ROE Normal ROE Expansion ROE C-4. Recession percentage change in ROE Expansion percentage change in ROE % % % % % % % % % % Fujita, Incorporated, has no debt outstanding and a total market value of $436,100. Earnings before interest and taxes, EBIT, are projected to be $56,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $210,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,900 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. 8-1. Recession ROE Normal ROE Expansion ROE 8-2. Recession percentage change in ROE 10.27% 12.84 % 14.77% -20.00% Expansion percentage change in ROE 15.00 % b-1. Recession ROE 13.31 % Normal ROE 18.27 % Expansion ROE b-2. Recession percentage change in ROE 21.98 % -27.12% Expansion percentage change in ROE 20.34 % Assume the firm has a tax rate of 24 percent. c-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. c-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. c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c-4. Given the 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. C-1. Recession ROE Normal ROE Expansion ROE c-2. Recession percentage change in ROE Expansion percentage change in ROE C-3. Recession ROE Normal ROE Expansion ROE C-4. Recession percentage change in ROE Expansion percentage change in ROE % % % % % % % % % %
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Courts are more willing to find misrepresentation if the defendant has a fiduciary relationship with the plaintiff than if a transaction occurs at arms length between the parties. True False
-
Repeat Problem 72 for a monatomic gas. P A B
-
The following hybrid system shown for separating methanol and water is one way of coupling membrane separators with distillation. The gas permeation membrane separator is designed to produce...
-
Internal Control of Cash} OBJECTIVE 23 Edward Tang, a long-time employee of a small grocery wholesaler, is responsible for maintaining the company's cash records and for opening the daily mail,...
-
The Biometrix Corporation has been in operation for one full year (2010). Financial statements follow. Biometrixs management is interested in determining the value of the venture as of the end of...
-
m Find the area bounded by the graphs of the indicated equations over the given interval. = -ex;y=0; -2$xs1 The area is D square units. (Type an integer or decimal rounded to three decimal places as...
-
A newly issued bond has a maturity of 10 years and pays a 7.4% coupon rate (with coupon payments coming once annually). The bond sells at par value. a. What are the convexity and the duration of the...
-
You calculated the value of a stock to be $106. The stock pays a dividend of $4.1. What is the most you should be willing to pay for the stock?
-
What is the big difference between these two types of markets? In which of the two do you prefer to invest, explain why?
-
The bundling of multiple, equity trading related services, used mainly by hedge funds, describes what kind of benefit offered by a full-service dealer?
-
the company current market price is $143.31M Ratio of current price to intrinic value is $38.81Mmargin of safety is $37.81M evaluate
-
a single division business is pursuing a low - cost competitive strategy which one of misunderstand organizational structure types will best support that strategy
-
Psi Corporation's Chief Financial Officer reviews the responsibility reports from all of the center managers. He tends to mainly intervene with the center managers when he discovers a problem. What...
-
A sprinkler head malfunctions at midfield in an NFL football field. The puddle of water forms a circular pattern around the sprinkler head with a radius in yards that grows as a function of time, in...
-
Determine the interest on the following notes: a. $38,760 at 10 percent for 90 days b. $27,200 at 12 percent for 60 days c. $30,600 at 9 percent for 30 days d. $51,000 at 15 percent for 120 days e....
-
Determine the maturity date, interest in 2007 and 2008, and maturity value for a 90-day, 12 percent, $15,000 note from a customer dated December 1, 20x7, assuming a December 31 year-end. Notes...
-
The Rosewood Parts Company sells merchandise on credit. During the fiscal year ended July 31, the company had net sales of $2,300,000. At the end of the year, it had Accounts Receivable of $600,000...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App