Plesae help me find the missing blank solutions. Problem 13-1 EBIT and Leverage

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Plesae help me find the missing blank solutions.

Problem 13-1 EBIT and Leverage [LO 1] Kaelea, Inc., has no debt outstanding and a total market value of $57,000. Earnings before interest and taxes, EBIT, are projected to be $8,200 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 22 percent higher. If there is a recession, then EBIT will be 33 percent lower. Kaelea is considering a $20,700 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 3,800 shares outstanding. Ignore taxes for this problem. Requirement 1 (a) Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Recession Normal Expansion 1.45 2.16 2.63 (b) Calculate the percentage changes in EPS when the economy expands or enters a recession. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).) Recession Expansion

Explanation / Answer

1.

2.

Total market value before recapitalization = $ 57000

No. of shares = 3800

Price per share = 57000 / 3800 = $15

Now, Debt = $20700

Equity = $36300 i.e (57000 - 20700)

No. of shares = 36300 / 15 =2420

Recession Normal Expansion EBIT $5494 i.e (8200 - 33%) $8200 $10004 i.e (8200 + 22%) No.of Shares 3800 3800 3800 a) EPS $1.45 $2.16 $2.63 b) % change in EPS (2.16 - 1.45)/ 2.16 = 32.87% (2.63 - 2.16) / 2.16 = 21.76%

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