Business & Finance Homework Help

East Side, Inc. has no debt outstanding and a total market value of RM136,000. Earnings before interest and taxes,

EBIT, are projected to be RM12,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 27 percent higher. If there is a recession, then EBIT will be 55 percent lower. East Side is considering a RM54,000 debt issue with a 5 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 2,000 shares outstanding. Ignore taxes. What is the change in EPS (in percentage) if the economy enters a recession as compared to a normal economy assuming that the firm recapitalizes.