27 Jun EBIT and Leverage [LO1] Ghost, Inc., has no debt outstanding and a total mar- ket value of $185.000
EBIT and Leverage [LO1] Ghost, Inc., has no debt outstanding and a total mar- ket value of $185.000. Earnings before interest and taxes, EBIT, are projected to be $29,000 if economic conditions are normal. If there is strong expansion in the econ- omy, then EBIT will be 30 percent higher. If there is a recession, then EBIT will be 40 percent lower. The company is considering a S65,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7.400 shares outstanding. Ignore taxes for this problem. . Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enters a recession. b. Repeat part o) assuming that the company goes through with recapitalization What do you observe?
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