River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $170,000 of debt at an interest rate of 10% and use the proceeds to repurchase 17,000 shares at $10 per share. Profits before interest are expected to be $117,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $170,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $170,000 of debt at an interest rate of 10% and use the proceeds to repurchase 17,000 shares at $10 per share. Profits before interest are expected to be $117,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $170,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

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