Explore BrainMass

Explore BrainMass

    EBIT and the relationship to the economy

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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!

    © BrainMass Inc. brainmass.com June 3, 2020, 10:09 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/ebit-and-the-relationship-to-the-economy-218122

    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

    ADVERTISEMENT