Question: I need some help with this question, thank you so much in advance Minion, Inc., has no debt outstanding and a total market value of

I need some help with this question, thank you so much in advance
I need some help with this question, thank you so much in
advance Minion, Inc., has no debt outstanding and a total market value
of $211.875. Earnings before interest and taxes, EBIT, are projected to be

Minion, Inc., has no debt outstanding and a total market value of $211.875. Earnings before interest and taxes, EBIT, are projected to be $14,300 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $33,900 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,500 shares outstanding. 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, assuming no taxes. (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 for economic expansion or recession, assuming no taxes. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a pergent rounded to the nearest whole number, e.g., 32.) b-1. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. (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-2. Calculate the percentage changes in ROE for economic expansion and recession after the recapitalization. (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. Percentage change in recession ROE Percentage change in expansion ROE b-1. Recession ROE % % % Normal ROE % % Expansion ROE b-2. Percentage change in recession ROE Percentage change in expansion ROE delse % % Assume the firm has a tax rate of 21 percent. C-1. Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession. (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-2. Calculate return on equity, ROE, under each of the three economic scenarios after the recapitalization. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming the firm goes through with the proposed recapitalization. (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 Recession percentage change in ROE Expansion percentage change in ROE C-2. Recession ROE % % % % % % % % % % Normal ROE Expansion ROE Recession percentage change in ROE Expansion percentage change in ROE

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

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

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!