Sunrise, Inc., has no debt outstanding and a total market value of $408,900. Earnings before interest and taxes, EBIT, a

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Sunrise, Inc., has no debt outstanding and a total market value
of $408,900. Earnings before interest and taxes, EBIT, are
projected to be $54,000 if economic conditions are normal. If there
is strong expansion in the economy, then EBIT will be 13 percent
higher. If there is a recession, then EBIT will be 21 percent
lower. The company is considering a $200,000 debt issue with an
interest rate of 5 percent. The proceeds will be used to repurchase
shares of stock. There are currently 8,700 shares outstanding.
Ignore taxes for questions a and b. Assume the company has a
market-to-book ratio of 1.0 and the stock price remains
constant
. a-1. Calculate return on equity (ROE) under each of the three
economic scenarios before any debt is issued. (Do not round
intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
a-2. Calculate the percentage changes in ROE when the economy
expands or enters a recession. (A negative answer should be
indicated by a minus sign. Do not round intermediate calculations
and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.
) b-1. Assume the firm goes through with the proposed
recapitalization. Calculate the return on equity (ROE) under each
of the three economic scenarios. (Do not round intermediate
calculations and enter your answers as a percent rounded to 2
decimal places, e.g., 32.16.)
b-2. Assume the firm goes through with the proposed
recapitalization. Calculate the percentage changes in ROE when the
economy expands or enters a recession. (A negative answer should be
indicated by a minus sign. Do not round intermediate calculations
and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.)