Fujita, Incorporated, has no debt outstanding and a total market value of $450,000. Earnings before interest and taxes, EBIT, are projected to be $57,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 16 percent higher. If there is a recession, then EBIT will be 24 percent lower. The company is considering a $215,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 9,000 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.

Assume the firm has a tax rate of 25 percent.
c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued.
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession.
Note: 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.
c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization.
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
c-4. Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession.