East Side,Inc

Multiple Choice

East Side,Inc.has no debt outstanding and a total market value of $136,000.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 27 percent higher.If there is a recession,then EBIT will be 55 percent lower.East Side is considering a $54,000 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.If the economy enters a recession,EPS will change by ____ percent as compared to a normal economy,assuming that the firm recapitalizes.

A) -70.97 percent
B) -63.15 percent
C) -58.08 percent
D) -42.29 percent
E) -38.87 percent