Question: Please solve for a-1. All three answers are wrong right now Sunrise, Inc., has no debt outstanding and a total market value of $200,000. Earnings

Please solve for a-1. All three answers are wrong right now

Please solve for a-1. All three answers are wrong right now Sunrise,Inc., has no debt outstanding and a total market value of $200,000.

Sunrise, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $13,000 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 30 percent lower. The company is considering a $70,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios. 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 de cimal places, e.g., 32.16.) Answer is complete but not entirely correct. a- 1. Recession EPS 1.10 $ 1.57 X $ 1.80 x a- 2. Normal EPS Expansion EPS Recession percentage change in EPS Expansion percentage change in EPS -30.00 % 15.00 % b- 1. Recession EPS $ 0.81 Normal EPS $ 1.56 b- 2. $ 1.93 Expansion EPS Recession percentage change in EPS Expansion percentage change in EPS -48.15% 24.07%

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 Finance Questions!