Calculate earnings per share EPS under each of the three economic scenarios after the recapitalization.

Kaelea Inc. has no debt outstanding and a total market value of $125000. Earnings before inte Show more Kaelea Inc. has no debt outstanding and a total market value of $125000. Earnings before interest and taxes EBIT are projected to be $10400 if economic conditions are normal. If there is strong expansion in the economy then EBIT will be 20 percent higher. If there is a recession then EBIT will be 35 percent lower. Kaelea is considering a $42000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 6250 shares outstanding. Assume Kaelea has a tax rate of 35 percent. 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 $ (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.) EPS Recession % Expansion % Requirement 2: Assume Kaelea goes through with recapitalization. Assume Kaelea goes through with recapitalization. (a) Calculate earnings per share EPS under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g. 32.16).) EPS Recession $ Normal $ Expansion $ (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).) EPS Recession % Expansion % Show less

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