Suppose that River Cruises, which currently is all-equity-financed, issues $250,000 of debt and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on its market value. Rework Table 16.3 to show how earnings per share and share return now vary with operating income.

Debt issued..............$250,000.00

Repurchase shares.......$25,000.00

Interest on debt...................10%

TABLE 16.3

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Data 100,000.00 Number of shares Price per share Market value of shares Market value of debt 10.00 S 500,000.00 S500,000.00 Outcomes State of the Economv Normal S 75,000.00 $ 125,000.00 S 175,000.00 S 50,000.00 S 50,000.00 S 50,000.00 S 25,000.00 S 75,000.00 S 125.000.00 Slump Boom Operating income Interest Equity earnings Earnings per share Return on shares 0.50 S 5% 1.50 S 15% 2.50 25%