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EBIT and the relationship to the economy

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Actually, this question has more to do with EBIT and the relationship to the economy. Let's say my company, Company A has no debt and a market value of $150,000. My EBIT is projected at $14,000. If the economy expands, EBIT will be 30% higher - as a contrast, if there's a recession, my EBIT will be 60% lower. I really want to issue about 60,000 of debt with a 5% interest rate. I plan on using the proceeds to repurchase shares of stock - as of today, I have 2500 shares outstanding.

Here's where i need lots of help:

1 - Please help me calculate the earnings per share under each of the 3 economic scenarios prior to any debt being issued.

2 - Please calculate the percentage changes in earnings per share when the economy expands or if we're in a recession

3 - Calculate questions 1 and 2, assuming that my company goes through recapitalization.

4 - Please calculate all questions again assuming my company's tax rate is 35%.

Thank you so much!

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Solution Summary

Excel file shows calculations of the earnings per share under each of the 3 economic scenarios (current ,economy expands or in a recession) and the percentage changes in earnings per share when the economy expands or if we're in a recession prior to any debt being issued and after recapitalization.

$2.19