Pop Question 1 Recession Expected EBIT $1,000 $2,000 Expansion $3,000 Current Assets $20,000 Suppose that River Cruises had issued $10,000 of debt, using the proceeds to buy back stock. Debt 0 A. What would be the impact of a $1,000 change in EBIT on earnings per share? Equity Debt/Equity ratio Interest rate $20,000 0 n/a (8% proposed) 400 B. Show how a conservative investor could "undo" the change in River Cruise's capital structure to create the same ROE as unlevered firm. Shares outstanding Share price 50 Pop Question 1 Recession Expected EBIT $1,000 $2,000 Expansion $3,000 Current Assets $20,000 Suppose that River Cruises had issued $10,000 of debt, using the proceeds to buy back stock. Debt 0 A. What would be the impact of a $1,000 change in EBIT on earnings per share? Equity Debt/Equity ratio Interest rate $20,000 0 n/a (8% proposed) 400 B. Show how a conservative investor could "undo" the change in River Cruise's capital structure to create the same ROE as unlevered firm. Shares outstanding Share price 50