Maynard, Inc., has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 30 percent higher. If there is a recession, then EBIT will be 50 percent lower. Maynard is considering a $90,000 debt issue with a 7 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 5,000 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 (%). Round your answers to the nearest whole number. (e.g., 32))
(b) Now assume that the company 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 include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)