River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $290.000 of debt at an interest rate of 10% and use the proceeds to repurchase 29,000 shares at $10 per share. Profits before interest are expected to be $129,000. e. What is the ratio of price to expected earnings for River Cruises before it borrows the $290,000? (Do not round intermedlete 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.)
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $290.000 of debt at an interest rate of 10% and use the proceeds to repurchase 29,000 shares at $10 per share. Profits before interest are expected to be $129,000. e. What is the ratio of price to expected earnings for River Cruises before it borrows the $290,000? (Do not round intermedlete 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $290.000 of debt at an interest rate of 10% and use
the proceeds to repurchase 29,000 shares at $10 per share. Profits before interest are expected to be $129,000.
e. What is the ratio of price to expected earnings for River Cruises before it borrows the $290,000? (Do not round intermedlete
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.)
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