QUESTION 1 Ghost, Inc., has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are nomal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. The company has a tax rate of 23 percent, a market-to-book ratio of 1.0, and the stock price remains constant. Calculate eamings per share (EPS) under the situation of recession. O 1.3.85 O2.5.49 0 3.6.82 04.4.81
QUESTION 1 Ghost, Inc., has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are nomal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. The company has a tax rate of 23 percent, a market-to-book ratio of 1.0, and the stock price remains constant. Calculate eamings per share (EPS) under the situation of recession. O 1.3.85 O2.5.49 0 3.6.82 04.4.81
Chapter16: Financial Planning And Control
Section: Chapter Questions
Problem 13PROB
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Transcribed Image Text:QUESTION 1
Ghost, Inc., has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions
are nomal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is
considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares
outstanding. The company has a tax rate of 23 percent, a market-to-book ratio of 1.0, and the stock price remains constant.
Calculate eamings per share (EPS) under the situation of recession.
O 1.3.85
O 2.5.49
O 3.6.82
O 4.4.81
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