Calculate roe and eps under each of the economic scenarios

Assignment Help Finance Basics
Reference no: EM132185234

Pendergast, Inc., has no debt outstanding, and has a total market value of $180,000. Earnings before interest and taxes (EBIT) are projected to be $23,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 20% higher. If there is a recession, then EBIT will be 30% lower. Pendergast is considering a $75,000 debt issue with a 7% interest rate. The proceeds will be used to repurchase shares of stock. There are currently 6,000 shares of stock outstanding, and the relevant tax rate is 35%.

a. Calculate ROE and EPS under each of the economic scenarios before any debt is issued.

b. Repeat part a, assuming that the company goes through with the capitalization.

c. Calculate the percentage changes in EPS when the economy expands or enters a recession.

Reference no: EM132185234

Discuss some of the highlights of the budget

Describe the type of budget (i.e., line item, program, performance). Discuss some of the highlights of the budget. Based on what you expected after reading Chapter Four, what

Calculate cash flow for the year

Cash Flows: A new project will generate sales of $74 million, costs of $42 million, and depreciation expense of $10 million in the coming year. The firm's tax rate is 35%. C

Multifidcuiary stakeholder models of corporate social

Explain each of shareholder and multifidcuiary stakeholder models of corporate social responsibility. Write down the problems which exist in respect of each of them.

How much is this investment worth at the end of year four

You have just purchased an investment that generates the cash flows shown below for the next four years. You are able reinvest these cash flows at 3.61 percent, compounded a

Would argentina have been better off during this period

To what extent did the fixed exchange rate policy contribute to Argentina's economic problems in 2000-2001? Would Argentina have been better off during this period with a fl

Qtip election for the assets

The day after Kenny died, Melissa gave Kenny's children and grandchildren each $22,000 then left for France to stay with her mother. Would a QTIP election for the assets tra

Calculate the after-tax cost of debt

Calculate the after-tax cost of debt if an interest rate is 5 percent and the tax rate is 34 percent. Express your answer in percentage (without the % sign) and round it to

Problem related to the working capital management

Examine the key reasons why a business may not want to hold too much or too little working capital. Provide two (2) examples that illustrate the consequences of either situa


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd