Reference no: EM132024297

Beckett, Inc., has no debt outstanding and a total market value of $ 120,000. Earnings before interest and taxes, EBIT, are projected to be $ 11,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 24 percent higher. If there is a recession, then EBIT will be 48 percent lower. Beckett is considering an $ 48,000 debt issue with a 4 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,000 shares outstanding. Ignore taxes for this problem.

Required:

(a) Earnings per share, EPS, for the recession, normal, and expansion scenarios before any debt is issued are $ , $ , and $ , respectively (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)). If the economy enters a recession or expands, EPS will change by percent or percent, respectively (Negative amount should be indicated by a minus sign. Do not include the percent signs (%). Do not round interim calculations. Round your answers to 2 decimal places. (e.g., 32.16)).

(b) Now assume that Beckett goes through with recapitalization. Earnings per share, EPS, for the recession, normal, and expansion scenarios are $ , $ , and $ , respectively (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)). If the economy enters a recession or expands, EPS will change by  percent or  percent, respectively (Negative amount should be indicated by a minus sign. Do not round interim calculations. Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)).