Minion, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Minion, Inc., has no debt outstanding and a total market value of $150,000. 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 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a 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.) b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a 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.) a-1. Recession EPS $ 2.24 Normal EPS $ 3.20 Expansion EPS $ 3.52 a-2. Recession percentage change in EPS -30.00 % Expansion percentage change in EPS 10.00 % b-1. Recession EPS $ 3.58 Normal EPS $ 5.50 Expansion EPS $ 6.14 b-2. Recession percentage change in EPS -34.91 % Expansion percentage change in EPS 11.64 % Minion, Inc., has no debt outstanding and a total market value of $150,000. 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 20 percent higher. If there is a recession, then EBIT will be 25 percent lower. The company is considering a $60,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a 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.) b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a 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.) a-1. Recession EPS $ 2.24 Normal EPS $ 3.20 Expansion EPS $ 3.52 a-2. Recession percentage change in EPS -30.00 % Expansion percentage change in EPS 10.00 % b-1. Recession EPS $ 3.58 Normal EPS $ 5.50 Expansion EPS $ 6.14 b-2. Recession percentage change in EPS -34.91 % Expansion percentage change in EPS 11.64 %
Expert Answer:
Related Book For
Fundamentals of corporate finance
ISBN: 978-0078034633
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
Students also viewed these finance questions
-
Rewrite the following sentences to reflect your audiences viewpoint. 1. We request that you include the order number with your inquiry. 2. We insist that you always bring your credit card to the...
-
Chew Corporation prepares its statement of cash flows using the indirect method of reporting operating activities. Statement of Net income for the 2016 fiscal year was $1,250,000. Depreciation...
-
Blue, Inc., sells playground equipment to schools and municipalities. It mails invoices at the end of each month for all goods shipped during that month; credit terms are net 30 days. Sales and...
-
Jason Cannon purchased a defective tractor for which Cannon brought numerous causes of action against Bodensteiner Implement Company (Bodensteiner). One of the claims was breach of express...
-
Beaver Brothers, Inc. is conducting a study to assess the capability of its 150-gram bar soap production line. A critical quality measure is the weight of the soap bars after stamping. The upper and...
-
A tiling company has been tasked to tile the floor of a new shopping mall using the following materials and creating the design which follows: . Square marble slabs . Heavy duty rods on the outer...
-
A car rounds a curved road (radius of curva- ture 180 m) with an initial speed of 20 m/s, as shown in Figure 1. If the car's speed starts to decrease at a rate of -0.02t m/s, deter- mine the...
-
What is Cognitive Psychology and explain the benefits of it?? Also, who is one of the most influential people in cognitive psychology?
-
To improve the effectiveness of its teaching staff, the administration of a high school offered the opportunity for all teachers to participate in a workshop. They were not required to attend;...
-
A bank is currently undercapitalized in terms of its Tier 1 capital (i.e., not meeting the minimum capital requirement) according to the Basel III capital requirement, what can the bank do to meet...
-
You are an auditor for Woodson and Sons, a manufacturing company that is concerned about fraud activities in its procurement and inventory management processes. The company has been experiencing...
-
Bidar, a financial advisor, is helping his client Madison decide on a savings strategy. He advises her to contribute to a Roth IRA. What does the Roth IRA offer that makes it a beneficial option for...
-
1. Circle the answer that you think is correct. a) Could a star that had 30 times the mass of the Sun when it was on the Main Sequence end up as a: i) White Dwarf? ii) Neutron Star? iii) Black Hole?...
-
Revol Industries manufactures plastic bottles for the food industry. On average, Revol pays $76 per ton for its plastics. Revol's waste-disposal company has increased its waste-disposal charge to $57...
-
At an output level of 15,000 units, you have calculated that the degree of operating leverage is 2.61. The operating cash flow is $57,000 in this case. Ignoring the effect of taxes, what are fixed...
-
A stock has had returns of 14 percent, 18 percent, 26 percent, 19 percent, 34 percent, and 9 percent over the last six years. What are the arithmetic and geometric returns for the stock?
-
Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.45 and lasts for 1,000 hours. A...
-
What is the difference between an F+ and an Hfr strain? Which type of strain can transfer many bacterial genes to recipient cells?
-
What is the role of the origin of transfer during conjugation involving F+ and Hfr strains? What is the significance of the direction of transfer in Hfr conjugation?
-
What is the role of sex pili during conjugation?
Study smarter with the SolutionInn App