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:

Dependent Variable

In scientific research, the variable that is observed and measured for change, which is expected to be influenced by the independent variable.

Study Guide

A comprehensive resource designed to help students understand and review material for exams, typically summarizing key concepts and offering practice questions.

Experimental Group

The group in an experiment that receives the treatment or intervention, allowing researchers to observe the effects.

Confound

A variable that influences both the dependent variable and independent variable, leading to a potential misinterpretation of the effects in a study.