River cruises is all-equity-financed with 100000 shares it, Ask an Expert

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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $220,000 of debt at an interest rate of 12% and use the proceeds to repurchase 22,000 shares at $10 per share. Profits before interest are expected to be $122,000.

a. What is the ratio of price to expected earnings for River Cruises before it borrows the $220,000?

(Do not round intermediate calculations. Round your answer to 2 decimal places.) Price-earnings ratio

b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price-earnings ratio

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92355475

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