Jasper Industrial Has No Debt Outstanding and a Total Market

question 14

Multiple Choice

Jasper Industrial has no debt outstanding and a total market value of $110,000.Earnings before interest and taxes,EBIT,are projected to be $12,000 if economic conditions are normal.If there is strong expansion in the economy,then EBIT will be 15 percent higher.If there is a recession,then EBIT will be 20 percent lower.Jasper Industrial is considering a $35,000 debt issue with a 7 percent interest rate.The proceeds will be used to repurchase shares of stock.There are currently 7,500 shares outstanding.Ignore taxes for this problem.What is the percentage change in EPS when a normal economy slips into recession?

• A)-33 percent
• B)-25 percent
• C)-20 percent
• D)-16 percent
• E)-10 percent

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Definitions:

Extinct Whales

Whale species that no longer exist, providing insight into evolutionary biology and environmental changes.

Homology

The existence of shared ancestry between a pair of structures, or genes, in different species.

Ectotympanic

A bone in the middle ear of mammals that supports the eardrum.

Hind Limbs

The pair of posterior limbs found in various vertebrates, functioning in locomotion, support, and in some species, manipulation of objects.