Question 1

River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $340,000 of debt at an interest rate of 12% and use the proceeds to repurchase 34,000 shares at $10 per share. Profits before interest are expected to be $134,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $340,000? (Do not round intermediate 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.) Price-earnings ratio