River Cruises is all-equity-financed.     Current Data         Number of shares   100,000               Price per share $ 10               Market value of shares $ 1,000,000               Outcomes   State of the Economy   Slump  Normal Boom Profits before interest $ 83,500   $ 142,000   $ 203,500       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.)           Data         Number of shares 100,000           Price per share $10           Market value of shares $10           Market value of debt $1,000,000           Outcomes   State of the Economy   Slump Normal Boom Profits before interest $83,500   $142,000   $203,500   Interest $25,000   $25,000   $25,000   Equity earnings $58,500   $117,000   $178,500   Earnings per share $(0.065)   $(0.130)   $(0.198)   Return on shares (0.01) % (0.01) % (0.02) %   Expected Outcome I put everything into excel, but I went wrong somewhere

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
100%

River Cruises is all-equity-financed.

 

  Current Data        
Number of shares   100,000              
Price per share $ 10              
Market value of shares $ 1,000,000              
Outcomes
  State of the Economy
  Slump  Normal Boom
Profits before interest $ 83,500   $ 142,000   $ 203,500  
 

 

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.)

 
 
 
 
  Data        
Number of shares 100,000          
Price per share $10          
Market value of shares $10          
Market value of debt $1,000,000          
Outcomes
  State of the Economy
  Slump Normal Boom
Profits before interest $83,500   $142,000   $203,500  
Interest $25,000   $25,000   $25,000  
Equity earnings $58,500   $117,000   $178,500  
Earnings per share $(0.065)   $(0.130)   $(0.198)  
Return on shares (0.01) % (0.01) % (0.02) %
  Expected Outcome

I put everything into excel, but I went wrong somewhere

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Stock repurchase
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education