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Calculate earnings per share-castle inc

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Castle, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 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 20 percent lower. The firm is considering a debt issue of $120,000 with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. The firm has a tax rate 35 percent. Assume the stock price remains constant.

a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued.

Recession: $

Normal: $

Expansion:

a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession.

Percentage changes in EPS

Recession: -20%

Expansion 15%

b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization.

EPS

Recession: $

Normal: $

Expansion: $

b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession.

Percentage changes in EPS

Recession: -31.71%

Expansion: 23.78%

If you could give a thorough explanation it would help so much with the other six I have like this one.

Reference no: EM132459539

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