River Cruises is all-equity-financed. Current Data ...
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Finance
River Cruises is all-equity-financed.
Current Data
Number of shares
100,000
Price per share
$
10
Market value of shares
$
1,000,000
State of the Economy
Slump
Normal
Boom
Profits before interest
$
80,500
136,000
197,500
Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data. (Do not round intermediate calculations. Round "Earnings per share" to 3 decimal places. Enter "Return on shares" as a percent rounded to 2 decimal places.)
Outcomes
Number of shares
Price per share
Market value of shares
Market value of debt
State of the Economy
Slump
Normal
Boom
Profits before interest
80,500
136,000
197,500
Interest
Equity earnings
Earnings per share
Return on shares
%
%
%
Expected Outcome
Answer & Explanation
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