Question: no excel. show step by step. only solve question 3 conditions are normal. If there is strong expansion in the economy, then EBIT will be

no excel. show step by step. only solve question 3

conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 30 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 7,400 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios. 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? 3. ROE and Leverage Suppose the company in Problem 1 has a market-to-book ratio of 1.0 and the stock price remains constant. a. 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, assuming no taxes

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