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Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected...

Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected to be $6,000 if economic conditions are normal. If there is a strong expansion in the economy, then EBIT will be 30% higher. If there is a recession, then EBIT will be 60% lower. The firm is considering a $40,000 debt issue with 5% interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,500 shares outstanding. Ignore taxes for this problem.

No excel please

a- Calculate EPS under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession. ($0.96; $2.4; $3.12, -60%; 30%)

b- Repeat part (a) assuming that the firm goes through with capitalization. ($0.27; $2.67; $3.87; -90%, 45%)

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