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Sunrise Inc. has no debt outstanding and a total market value of $395,600. Earnings before interest...

Sunrise Inc. has no debt outstanding and a total market value of $395,600. Earnings before interest and taxes, EBIT are projected to be $53,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 13% higher, if there is a recession, then EBIT will be 22% lower. The company is considering a $195,000 debt issue with an interest rate of 8%. The proceeds will be used to repurchase shares of stock. There are currently 8,600 shares outstanding. The company has a tax rate of 21%, a market to book ratio of 1.0, and the stock price remains constant.

a.2

Recession Percentage change in EPS

%

Expansion Percentage change in EPS

%

b.1

Recession EPS

Normal EPS

b.2

Expansion EPS

Recession Percentage change in EPS

%

Expansion Percentage change in EPS

%
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