Problem 2 show work please... thanks for you help!

1. East Side, Inc. has no debt outstanding and a total market value of $136,000. Earnings before interest and taxes, EBIT, are projected to be $12,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 27 percent higher. If there is a recession, then EBIT will be 55 percent lower. East Side is considering a $54,000 debt issue with a 5 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,000 shares outstanding. Ignore taxes. If the economy enters a recession, EPS will change by ____ percent as compared to a normal economy, assuming that the firm recapitalizes. (Show your work)

2. SIP Corp. uses no debt. The weighted average cost of capital is 8 percent. If the current market value of the equity is $18 million and there are no taxes, what is EBIT?

3. In the previous question, suppose the corporate tax rate is 35 percent. What is EBIT in this case? What is the WACC? Explain.

4. Alulu Inc. has an expected EBIT of $73,000 in perpetuity and a tax rate of 35 percent. The firm has $145,000 in outstanding debt at an interest rate of 7.25 percent, and its unlevered cost of capital is 11 percent. What is the value of the firm according to M&M Proposition I with taxes? Should the company change its debtequity ratio if the goal is to maximize the value of the firm? Explain.

5. Red Rocks Corporation (RRC) currently has 425,000 shares of stock outstanding that sell for $80 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

a. RRC has a five-for-three stock split?

b. RRC has a 15 percent stock dividend?

c. RRC has a 42.5 percent stock dividend?

d. RRC has a four-for-seven reverse stock split?

Determine the new number of shares outstanding in parts (a) through (d).