Maynard, Inc., has no debt outstanding and a total market value of $158,000. Ear

Question

Maynard, Inc., has no debt outstanding and a total market value of $158,000. Earnings before interest and taxes, EBIT, are projected to be $15,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 31.5 percent higher. If there is a recession, then EBIT will be 63 percent lower. Maynard is considering a $63,000 debt issue with a 4 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,500 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)).

Explanation / Answer

(a) Earnings per share, EPS, for the recession, normal, and expansion scenarios before any debt is issued are $_2.22_, $_6_, and $_7.89_, respectively

recession EPS= 5550/2500=2.22

normal EPS= 15000/2500= 6

expansion EPS= 19725/2500=7.89

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