Money, Inc., has no debt outstanding and a total market value of $193,500. Earnings before interest and taxes, EBIT, are projected to be $21,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 33 percent higher. If there is a recession, then EBIT will be 60 percent lower. Money is considering a $72,000 debt issue with a 7 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 4,300 shares outstanding. Assume Money has a tax rate of 30 percent.
(a)Calculate earnings per share, EPS, under each of the three economic scenarios assuming the company goes through with the recapitalization. Also calculate the percentage changes in EPS when the economy expands or enters a recession. Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places.
Recession Normal Expansion
EPS ? ? ?
%?EPS ? ----- ?