ASSIGNMENT 6: CAPITAL STRUCTURE AND IMPACT ON VALUATION 1. River Cruises is allequitynanced with 100,000 shares. It now proposes to issue $250,000 of debt at an interest of 10% and use the proceeds to repurchase 25,000 shares. Prots before interest are expected to be $125,000. The tax rate of the company is 40%. a. What is the ratio of price to expected earnings for River Cruises before the debt issue and stock repurchase? b. What is the ratio of PE after the debt issue and stock repurchase? Analyze the difference you nd between a] and b] d. How would you change your assessment in b if you assume the market inputs the value of tax shields in the stock price? .0