, has no debt outstanding and a total market value of $240,000.

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I need help with the below problem

Castle, Inc., has no debt outstanding and a total market value of $240,000. 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 10 percent higher. If there is a recession, then EBIT will be 25 percent lower. The firm is considering a debt issue of $48,000 with an interest rate of 4 percent. The proceeds will be used to repurchase shares of stock. There are currently 20,000 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.


a-2.

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


b-1.

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


b-2.

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

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