25 Jul CALCULATE THE PERCENTAGE CHANGES IN ROE WHEN THE ECONOMY EXPANDS OR ENTERS A RECESSION.
– Beckett Inc. has no debt outstandin Show more ROE with explanation please!! ROE.. With explanation PLEASE!!! Beckett Inc. has no debt outstanding and a total market value of $200000. Earnings before interest and taxes EBIT are projected to be $26000 if economic conditions are normal. If there is strong expansion in the economy then EBIT will be 12 percent higher. If there is a recession then EBIT will be 25 percent lower. Beckett is considering a $65000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 10000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. a1- Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued a2- Calculate the percentage changes in ROE when the economy expands or enters a recession. Now Assume the firm goes through with the proposed recapitalization: b1- Calculate the return on equity (ROE) under each of the three economic scenarios. b2- Calculate the percentage changes in ROE when the economy expands or enters a recession Finally Assume the firm has a tax rate of 35 percent. c1 Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued c2- Calculate the percentage changes in ROE when the economy expands or enters a recession c3- Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. c4- Given the recapitalization calculate the percentage changes in ROE when the economy expands or enters a recession. Show less
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