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:

High Level

Pertaining to a position, status, or stage that is significantly above average in terms of importance, difficulty, or complexity.

Effort Required

The amount of physical or mental exertion needed to achieve a task or goal.

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A person's confidence in their capacity to achieve success in particular scenarios or complete a given task.

Persistence

The quality of continuing steadily despite problems or difficulties.