River Cruises (see Section 16.1) is all-equity-financed with 100,000 shares. It now proposes to issue $250,000 of
Question:
River Cruises (see Section 16.1) is all-equity-financed with 100,000 shares. It now proposes to issue $250,000 of debt at an interest rate of 10% and use the proceeds to repurchase 25,000 shares. Profits before interest are expected to be $125,000.
a. What is the ratio of price to expected earnings for River Cruises before it borrows the $250,000?
b. What is the ratio after it borrows?
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a Share price 10 With no leverage there are 100000 shares outstanding Expected earnings pe...View the full answer
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Related Book For 
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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