Suppose that River Cruises, which currently is all-equity-financed, issues $250,000 of debt and uses the proceeds to

Question:

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.

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

Repurchase shares......$250,000.00

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

TABLE 16.3

Suppose that River Cruises, which currently is all-equity-financed, issues $250,000
of

Suppose an investor is unhappy with River Cruises' decision to borrow $250,000. What modifications can she make to her own investment portfolio to offset the effects of the firm's additional borrowing?
Amount invested (assumed)...........$10,000.00

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...