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Kaelea, Inc., has no debt outstanding and a total market value of $74,000. Earnings before interest and taxes, EBIT, are projected to be $8,100 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 21 percent higher. If there is a recession, then EBIT will be 34 percent lower. Kaelea is considering a $27,400 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 3,700 shares outstanding. Ignore taxes for this problem. Requirement 1: (a) Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Recession $ Normal $ Expansion $ (b) Calculate the percentage changes in EPS when the economy expands or enters a recession. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) %ΔEPS Recession % Expansion % Requirement 2: Assume Kaelea goes through with recapitalization. (a) Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Recession $ Normal $ Expansion $ (b) Calculate the percentage changes in EPS when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) %ΔEPS Recession % Expansion %
Marcel Co. is growing quickly. DIvidends are expected to grow at a 30 percent rate for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 13 percent and the company just paid a $1.80 d..
The categorical imperative is the essential base component of:
Surplus and Deficit Units Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a deficit unit in your relations..
Adams, Inc. is a family-owned business that has one class of stock. There are 600 shares allocated equally to Al Adams, Bev Adams, Curt Adams, Derek Adams, Elroy Adams and Fred Murray. Would this transaction meet the three IRS change in stock ownersh..
Hart Enterprises recently paid a dividend, D0, of $2.75. It expects to have no constant growth of 25% for 2 years followed by a constant rate of 8% thereafter. The firm's required return is 10%.
Page Enterprises has bonds on the market making annual payments with seven years to maturity, and selling for $950. At this price, the bonds yield 6.00 percent. What must the coupon rate be on the bonds?
Mitts Cosmetics Co.'s stock price is $60.31, and it recently paid a $2.50 dividend. This dividend is expected to grow by 24% for the next 3 years, then grow forever at a constant rate, g; and rs = 15%. At what constant rate is the stock expected to g..
A lathe costs $30,000 and is expected to have a 7 year life. The lathe will be depreciated straight line over 7 years to an estimated salvage value of $2,000. This machine is expected to reduce the firm’s cash operating costs by $5,500 per year. If t..
The Black Bird Company plans an expansion. The expansion is to be financed by selling $32 million in new debt and $71 million in new common stock. The before-tax required rate of return on debt is 11.74% percent and the required rate of return on equ..
Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was found..
Tappan, Inc., manufactures one product and accounts for costs using a job cost system. You have obtained the following information from the corporation's books and records for the year ended December 31, Year 1:
LaShon Vega is purchasing a $250,000 with a 20% down payment. Her lender offers her a 30-year fixed mortgage rate of 5.5% or an opportunity to pay two points to reduce that rate to 5.25%. Show work: How much will the rate reduction cost her? What are..
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